Analysts say this hidden UK growth stock could soar 23% in the next 12 months

Our writer has found a growth stock with a robust acquisition strategy focused on niche markets. As a smaller company, it’s less prone to overvaluation.

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The growth stock I’m looking at today is Judges Scientific (LSE:JDG). It’s a UK company that buys and builds businesses in the scientific instrument industry.

While it currently has a rich valuation, analysts have strong earnings growth forecasts for the company for the next three years. Based on its rapid rates of expansion, the average analysts’ 12-month price target for the shares is a 23% return.

High growth comes at a price

Starting with the weakest element first (because there’s a lot of strength to come), Judges Scientific has rising price-to-earnings (P/E) and price-to-sales (P/S) ratios. This is cause for concern to me because it means there’s no margin of safety in the share price. If there are any issues with new acquisitions or failures in its current subsidiaries, the valuation is more prone to volatility.

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That said, it’s worth remembering that the best companies in the world always trade at rich valuations. I think it’s a price likely worth me paying. However, I have to bear in mind that with slightly slower revenue increases on the horizon than previously, it might not be a straight path to success for me as a shareholder.

Expanding revenues mean strong returns

The biggest driver of Judges Scientific’s long-term growth is its acquisition strategy. By buying up smaller businesses that have cornered niches in the scientific manufacturing industry, the conglomerate could potentially continue to rise in prominence.

The company boasts a three-year average annual revenue growth of 18%. After a lagging performance in 2024, growth looks set to resume confidently in 2025 and 2026.

It’s no surprise then, that the average analyst price target for Judges Scientific indicates such momentous near-term growth.


A Foolish long-term investment?

As a Fool, I only but stocks for the long term. One of the key elements I look for in the companies I invest in is an exceptional management team.

Thankfully, Judges Scientific is well-run. Founder David Cicurel has been CEO since 2002. With nearly 22 years at the firm and a background as a turnaround specialist and value investor, I think the company is in safe hands.

Mark Lavelle is also in the ranks as COO. He joined in 2017, bringing a wealth of experience from FTSE 100 darling Halma.

The reason I value a strong management team is that buying shares successfully over the long term is all about investing in well-structured, profitable, and well-led businesses. That’s a famous tenet from the great Warren Buffett.

Smaller companies, bigger gains

The great thing about investing in smaller companies is that they don’t attract much attention from big players. These can include banks, university funds, or corporate investors. With Judges Scientific’s relatively low market cap of £671m, it’s a great opportunity for individual investors like me. Less competition in the market helps keep its valuation more stable.

Warren Buffett famously began his career by focusing on smaller companies. He invested in those he believed had the necessary elements for world-class returns. This included focusing on competitive advantages, unique market positions, solid management teams, good growth potential, and fair prices.

I think Judges Scientific has many of these elements, and so it’s a Buy in my book. I’ll likely look at purchasing some of its shares in October.

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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.

Oliver Rodzianko has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma Plc and Judges Scientific 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.

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