This UK growth stock is up 100% in a year! Would I be mad to buy shares now?

Anyone who invested in UK defence conglomerate Cohort a year ago has doubled their money already. But is it a big mistake to buy shares at today’s prices?

| 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.

Middle-aged white man pulling an aggrieved face while looking at a screen

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.

Cohort (LSE:CHRT) shares are up 100% over the last 12 months, but it might not be too late to consider buying the stock. Management sees more opportunities ahead for the defence business.

Created with Highcharts 11.4.3Cohort Plc PriceZoom1M3M6MYTD1Y5Y10YALL18 Dec 201918 Dec 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

The stock trades on the Alternative Investment Market (AIM), which means it gets less coverage than its FTSE 100 or FTSE 250 counterparts. But this could be a hidden gem for UK investors to consider.

What does Cohort do?

Cohort is a collection of six smaller businesses focused on defence. And with ongoing conflicts in Ukraine and the Middle East, investors might expect to see strong demand for the company’s products.

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

See the 6 stocks

This has indeed been the case. Sales have increased 25% and widening margins mean this has translated into 90% growth in earnings per share. 

Importantly, though, Cohort’s success isn’t just the product of geopolitical tensions. Management has been growing the organisation in ways that should provide durable results.

Source: Cohort Interim Results FY 24/25

The company’s growth strategy is built on acquiring other firms and improving their operations. Chess Dynamics – a surveillance and fire control business – is a good example.

Cohort acquired the outfit in 2018 for a cost of around £21m. Since then, margins have expanded from 2% to 10%, and earlier this year, it won three air defence contracts worth over £25m in total.

Importantly, it looks like there’s more to come. With improvements to its Portuguese subsidiary and the acquisition of EM Solutions this year, management expects growth to continue.

Risks and rewards

With the stock trading at a price-to-earnings (P/E) ratio of 29, the market is expecting Cohort’s earnings to grow. And acquisitions are likely to be a key part of the growth plan. 

With this type of approach, there’s always a danger of paying too much to bring in a new subsidiary. And this is something investors should be especially wary of at the moment. 

Cohort is benefiting from strong demand at the moment and it’s easy for a firm to overplay its hand in this situation. But as Synthomer demonstrated during the pandemic, this can be costly.

Created with Highcharts 11.4.3Synthomer Plc PriceZoom1M3M6MYTD1Y5Y10YALL18 Dec 201918 Dec 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

The key is going to be keeping an eye on the company’s balance sheet. If it can avoid getting too far into debt to fund its investments, I expect things to work out well over time.

The acquisition of EM Solutions is set to take the business into a net debt position this year. But if the firm keeps growing its profits, I don’t see anything to worry about on this front – yet.

If Cohort can get this right, though, the rewards could be huge. A look at the returns from the likes of Halma and Diploma shows what can happen when a company acquires well.

Created with Highcharts 11.4.3Halma Plc + Diploma Plc PriceZoom1M3M6MYTD1Y5Y10YALL18 Dec 201918 Dec 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24www.fool.co.uk

To buy or not to buy?

I don’t think it would be mad for me to consider buying Cohort shares at today’s prices. The business has a strategy that has powered some of the UK’s most impressive growth stocks.

The rate at which earnings increase will inevitably depend on the geopolitical situation. But I’m seriously considering adding the stock to my portfolio before the end of the year.

Should you buy Cohort Plc now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation 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.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Cohort Plc, Diploma Plc, Halma Plc, and Synthomer 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 »