Is this FTSE 100 company a no-brainer buy?

Making the decision to add to a portfolio can be hard. But with lots to like, is starting a position in this FTSE 100 stock an easy choice to make?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Among a number of excellent FTSE 100 companies, Halma (LSE:HLMA) is an intriguing prospect that may have avoided many investors’ radars. This technology conglomerate, specialising in life-saving safety, health, and environmental technologies, has been steadily climbing over the last year. So is it a company that belongs in my own portfolio? Let’s dig in.

A great year so far

The shares have surged 20.5% over the past year, significantly outpacing the FTSE 100’s 6.4% gain after impressing in the latest earnings report.

Created with Highcharts 11.4.3Halma Plc PriceZoom1M3M6MYTD1Y5Y10YALL1 Jul 201931 Jul 2024Zoom ▾Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

With a market capitalisation of £10bn, the firm generated an impressive £2.03bn in revenue and £268.8m in earnings over the trailing 12 months. However, its price-to-earnings ratio (P/E ratio) of 37.2 times suggests that much of this success might already be priced in to the shares. This is a bit of a concern, so investors like me must carefully weigh whether this premium valuation is justified.

Should you invest £1,000 in Ocado right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ocado made the list?

See the 6 stocks

Diverse operations

The business has operated since 1894, and spans three main segments: Safety, Environmental & Analysis, and Healthcare. This diversification provides multiple growth avenues and a degree of insulation from sector-specific downturns. The Safety segment, in particular, addresses growing global concerns about security and infrastructure protection.

The company maintains a solid balance sheet with a debt-to-equity ratio of 41%, offering financial flexibility for future growth. For dividend investors, it provides a modest 0.8% dividend yield with a conservative 30% payout ratio.

Analysts project decent 8.1% annual earnings growth, indicating continued expansion. The company’s focus on innovation and strategic acquisitions in high-growth niche markets supports this outlook. Moreover, increasing global emphasis on the issues the firm addresses bodes well for the product portfolio.

Risks ahead

Despite its strengths, the firm clearly faces a number of risks. It operates in competitive markets, requiring constant innovation to maintain its edge. As a global business, it’s also exposed to currency fluctuations and geopolitical risks.

However, my key concern is that the shares are already well above fair value. According to a discounted cash flow (DCF) calculation, the shares are currently as much as 71% above estimated fair value. With the shares moving higher for the last year without many dips, any change in the market could easily see a sharp move down.

One for the watchlist

While Halma presents an attractive profile with its consistent performance, diversified business model, and excellent balance sheet, calling it a no-brainer buy seems an overstatement. Its premium valuation suggests that much of its potential is already recognised by the market.

I’d say the company’s solid fundamentals and promising outlook make it a worthy consideration for FTSE 100 investors. However, I’d be concerned about joining the party myself just as the music stops. It certainly warrants a closer look for those seeking exposure to the safety tech sector but I’ll only be adding it to my watchlist for now.

Should you buy Ocado shares today?

Before you decide, please take a moment to review this first.

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Gordon Best has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »