Diploma (LSE: DPLM) is one of those under-the-radar growth stocks that delivers consistently high returns, year after year. A 630% share price increase combined with uninterrupted dividend payouts equated to an 892% return in 10 years — or 26% per annum on average.
Considering many investors aim to achieve 10% returns in a good year, that’s pretty impressive! But is it the type of business that will maintain the same level of demand for the next 10 years?
I decided to take a closer look.
A diverse business
Diploma is a specialist distributor of critical engineering parts covering three distinct sectors: controls, seals and life sciences. Each sector serves resilient end markets, helping bring in consistent and reliable revenue.
Controls is the largest contributor, making up 54% of revenue in 2025. It involves wiring, connectors, fasteners and automation solutions, and achieved 20% organic growth this year. Seals make up around 30% of revenue and involve gaskets, hoses, fittings, pumps and other parts for factory machinery. Life sciences is the smallest sector, making up 15% of revenue and covering medical technology and scientific instruments.
Although these products form the backbone of the technology that keeps the world running, few people know of Diploma by name. As such, it’s often an overlooked company when in fact, it’s one that any growth-oriented investor should consider.
But will its products continue to enjoy strong demand through 2030 and beyond?
Looking ahead
Diploma supplies critical components to several sectors that look likely to continue growing in the coming years. In particular, aerospace and health technology offer promise.
Parts for maintenance, repair, and overhaul (MRO) in aerospace are expected to see a 40% to 50% increase in capacity over five years. Medical diagnostics investments continue accelerating as healthcare systems prioritise early detection and digital health integration.
Most encouragingly, there’s significant opportunity for further expansion in North America, where Diploma already captures 53% of revenues. This is particularly true for niche, value-added markets where competition is limited.
Risks to consider
Despite all the positives, Diploma is not immune to risks, which investors should take into consideration. The stock currently trades at a forward price-to-earnings (P/E) ratio of approximately 30, significantly above the average for UK stocks.
With the shares trading at around 5,500p, some analysts estimate the stock may be 33% overvalued using a discounted cash flow (DCF) model. This premium valuation leaves limited margin for error should growth expectations disappoint.
My verdict
Diploma has seen rapid price gains in recent months, so the overvaluation risk is a concern. But it’s not one I’d be too worried about in the long term. The company exhibits an excellent track record of growth, supported by strong management, sustainable practices and strategic expansion.
For investors targeting long-term returns without the hype and risk of popular tech, Diploma is a stock worth considering in my books. With deep roots across multiple sectors and exposure in key growth markets, it offers decent earnings visibility.
While average annual returns over the next decade may be less than 26%, an estimate of 12% to 15% is still realistic and substantial.
As always, investors should aim to build a diversified portfolio of shares to help reduce sector-specific risk.
