Essentra (LSE:ESNT) is a FTSE 250 stock that, according to research published at the start of 2025 by AJ Bell, was tipped as a Buy by all 17 analysts covering it. When it comes to picking stocks, such unanimity is unusual. Those who regularly read The Motley Fool will know that opinions differ widely.
But as the Chinese proverb says: “Listen to all, pluck a feather from every passing goose, but follow no one absolutely.” In other words, consider everyone’s opinion but don’t blindly follow.
However, when 17 out of 17 ‘experts’ consider a stock to be a Buy, it’s sometimes difficult to take a different view.
A brief overview
Essentra says that it manufactures “essential components”. It currently makes over 3bn of them a year. These are small but critical parts – locks, washers and castors, to name a few — that are predominantly used in the manufacture of other products. Clearly, there’s significant demand for these things. The group has 14 manufacturing plants and a presence in 28 countries.
When the group’s 2024 results are finalised, they are likely to show revenue of just over £300m. And an adjusted profit before tax of £39.8m-£40.3m. This is in line with analysts’ expectations. The consensus forecast is for earnings per share (EPS) of 8.5p. If they are right, the stock’s trading on a reasonable 13.9 times historic earnings. This compares favourably to that of Diploma, the FTSE 100 company that operates in the same sector. It has a price-to-earnings ratio of nearly 30.
Is it really a growth stock?
It’s difficult to assess the historical performance of the business because it went through a major restructuring in 2022. The group sold its packaging and filters divisions. The proceeds were used to reduce borrowings and helped fund a special dividend.
But curiously, analysts are forecasting revenue in 2025 to be flat. And they are predicting a fall in EPS to 7.5p. This doesn’t feel like a growth stock to me and not one that I’d like to invest in. Of course, successful investing is all about taking a long-term view. But if this expected stagnation proves to be correct, in a year’s time, I suspect the share price will be lower than it is today. If I wanted to buy the stock, I reckon I could get it cheaper this time next year.
My verdict
As well as the anticipated lack of growth, I’m also concerned about the impact of President Trump’s threatened tariffs. In 2023, approximately 30% of the group’s revenue was generated from the United States. But it’s unclear to me whether the company’s manufacturing facilities inside the country can meet this demand. Bringing products into America that have been made overseas could soon attract higher import taxes.
Don’t get me wrong, I have nothing against the company. It looks to be well run and good at what it does. And its borrowings appear to be under control. Also, based on dividends paid over the past 12 months, the stock’s currently (10 March) yielding a reasonable 3.1%.
However, it doesn’t feel like it’s going places to me. Therefore, I don’t want to make an investment, despite what the analysts think.
