Down almost 50%, but this FTSE 250 firm just released a positive update. Time to buy?

The value is building for this FTSE 250 stock and I can’t ignore it any longer following today’s positive trading statement.

| 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.

Young female business analyst looking at a graph chart while working from home

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.

The FTSE 250‘s Renishaw (LSE: RSW) has been on my radar for ages.

It’s a UK-based supplier of manufacturing technologies, analytical instruments, and medical devices. The business ticks quite a few of my boxes for quality.

For example, the operating margin is running at a meaty-looking 15.7% or so, and the return on capital employed a respectable 11.4%.

Should you invest £1,000 in BP 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 BP made the list?

See the 6 stocks

On top of that, the business has a nice chunk of net cash on the balance sheet, rather than net debt. There’s also a robust multi-year record of consistent cash flow.

I reckon all those indicators combine to suggest an enterprise with some technical advantages and a good hold on its niche in the market.

Better value now?

But… one thing that has put me off the stock for a long time has been valuation. The positive attributes I mentioned have been noticed by the market and the valuation has always been well up with events.

However, the situation has changed a bit over the past few years. Renishaw hasn’t been immune to all the general economic and geopolitical challenges we’ve all faced. They’ve contributed to a patchy record for earnings.

The stock market has been swift to punish the stock, and it’s down almost 50% since the spring of 2021.

Created with Highcharts 11.4.3Renishaw Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

As uncomfortable as the situation may be for existing shareholders, it does raise the possibility that the valuation might have eased a bit — and I think it has.

Today’s (24 October) share price near 3,271p puts the forward-looking price-to-earnings (P/E) ratio at about 18 for the trading year to June 2026.

I admit that’s still not bargain-basement stuff. But it’s worth noting City analysts have pencilled in quite robust increases for earnings. They expect 15%-16% advances for this trading year and the next to 2026.

I’d do more research now

At first glance, it looks like Renishaw may have returned to its old form and earnings declines are in the rear-view mirror — at least for the time being.

I’m encouraged further by the trading statement released today. There was a decline in profits in the firm’s analytical instruments and medical devices division. But overall adjusted profit before tax rose by 22% in the three months to 30 September, when measured year on year.

Looking ahead, the company expects to meet prior expectations for the full trading year to June 2025. But the directors expressed a note of caution too. They are wary about demand for encoder products from the semiconductor manufacturing sector for the rest of the year.

That’s one of the risks here — the Renishaw business is vulnerable to the economic ups and downs of the sectors it serves. No amount of well-defended market share will save it from that challenge. If an industry Renishaw serves turns down, the company’s earnings and stock price will likely follow causing shareholders to lose money.

Nevertheless, I see the stock opportunity here today as far more attractive than it was when the valuation was higher. So I’d be inclined to dig in with further research and consideration now.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Renishaw 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing For Beginners

Why I’m staying away from the Barclays share price even with a 19% drop

Jon Smith explains why he's cautious right now about the Barclays share price, with the potential for lower revenues from…

Read more »

Investing Articles

2 FTSE 100 and FTSE 250 stocks to consider as stock markets plummet!

Looking for lifeboats as growth-crushing trade tariffs loom? Here are two (including a FTSE 100 gold stock) I think merit…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Watches of Switzerland shares 1 year ago is now worth…

Watches of Switzerland shares have been decimated by Trump’s tariffs on Switzerland. Dr James Fox explores whether this is an…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Growth stocks are crashing! Here’s what I’m doing now

Our writer shares his thoughts as growth stocks get crushed, as well as a favourite from the Nasdaq that he…

Read more »

Investing Articles

What’s going on with the Nvidia share price now?

The Nvidia share price is tanking. Once the most valuable listed company, Nvidia has seen more than $1trn wiped off…

Read more »

Investing Articles

This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

I love this FTSE AIM stock, but it really hasn’t delivered for me yet. The stock trades with crazily low…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »