There’s a FTSE 250 stock I absolutely love. I was planning to buy it before its recent results on 30 July, but bungled my timing. By the time I realised they were out, the shares were heading skywards after pre-tax profits jumped 47% to £35.5m on revenue of £220m. Defence and nuclear markets were particularly strong.
I thought I’d wait for profit-taking to bring the price back down. Instead, they’ve powered to new highs, which leaves me with a dilemma.
The Goodwin share price is flying
The stock in question is family-run engineering group Goodwin (LSE: GDWN). It’s had a stunning run, rising 27.8% in the past month. Over one year it’s up 85%, and over three years the gain is a remarkable 396%. Dividends are on top.
Normally, I prefer to buy unloved companies in the hope of a rebound. For once, I’m tempted to chase momentum. There’s a problem though. Goodwin now trades on a price-to-earnings ratio of almost 39. That’s sky-high by my standards.
It’s got a great dividend track record but as the shares rocket, the trailing yield has slipped to 2.14%. I still think the company has huge potential, especially as it wins more work in the defence sector. Yet I’m wary of diving in today.
Family-controlled success
Goodwin’s roots stretch back to 1883. It has long-term vision, a focus on quality and deep client relationships. Over the past two decades, the company has delivered total compound returns of 4,632%. Goodwin produced that figure months ago. It’s almost certainly higher today.
The group is based in Stoke-on-Trent but around 70% of sales come from overseas. Goodwin supplies major projects in oil and gas, mining and nuclear decommissioning. It operates 18 manufacturing sites across Europe, Asia, Africa and the Americas. That global spread cushions local slowdowns and provides exposure to fast-growth markets. Its products, such as slurry pumps and nozzle check valves, aren’t glamorous but are essential kit.
Defence sector hero
Unfortunately for me, Goodwin’s latest surged by another 16% on 24 September, when the group announced a major collaboration with US defence contractor Northrop Grumman. Orders for its submarine project start with an initial $16m, but could exceed $200m.
Management said the agreement cements its role in “mission-critical applications” and could lead to more collaborations in the future. Goodwin’s total order book was £357m on 31 August, up 24% from April. The group’s market cap is just shy of £984m.
Weighing the risks
Goodwin’s link to the defence industry is a powerful growth driver, with global tensions on the rise. Yet valuations this high make me nervous. If contracts fall through or technical issues arise, investors could jump ship. Supply chain hiccups are another risk. The ebb and flow of new orders adds to volatility.
I’ve missed the boat for now, but haven’t given up. If a broader market wobble drags Goodwin’s P/E down to a more palatable level, this will be the first share I buy. For those willing to pay up today, it’s worth considering today, but I’ll wait. Let’s see how October plays out.
