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This growth stock continues to thrash the FTSE 100 but is it worth buying now?

There are some businesses in the FTSE 100 that just seem to keep performing no matter what. One example of this is health and safety products supplier Halma (LSE: HLMA)

The £7.5bn cap shows how profitable adopting a buy-and-hold strategy can be. In five years, the share price has climbed well over 200%. That might not be enough to impress small-cap aficionados who’ve become accustomed to multi-baggers, but it’s clearly a far better gain than the 9% achieved by the FTSE 100 index.

Underlining Halma’s tendency as one of the most dependable stocks in the top tier, today’s trading update from the company was as reassuring as they come.

Same old story

Performance from the beginning of April to date had been in line with management expectations. Despite tough comparators from the previous year, both organic revenue (at constant currency) and order intake were higher than over the same period in 2018. 

Halma — more a collection of businesses rather than one lumbering beast — saw growth in all four sectors it operates in (Environmental & Analysis, Medical, Infrastructure Safety, and Process Safety). Even more positively, the company logged revenue increases in all its major regions, particularly in the US and the UK. As is the case with many FTSE 100 companies, the Brexit-influenced fall in the pound hasn’t done it any harm either. 

Despite the growth in organic revenue, Halma also remains committed to its acquisition strategy. Back in July, it announced the capture of fire and evacuation systems supplier Ampac Group for £74m. According to the company, the integration of this business — and two other small acquisitions in the UK and France — is “progressing well“. 

As so often happens with highly-rated companies, Halma’s share price was down in early trading as traders looked to bank profits following a period of positive momentum that has seen its value rise almost 50% since the beginning of 2019. 

This makes sense considering, at 34 times forecast earnings before markets opened this morning, the valuation is punchy, even for such a quality business. It’s also quite a bit higher than its five-year average of just under 27 times. 

As such, I personally wouldn’t be inclined to buy at the current time, unless I was committed to holding the Amersham-based business for the very long term. Should a general market slump occur, however, I can see Halma being in great demand.

Future FTSE 100 member?

A second stock that just seems to be content to avoid headlines and chug away in the background for investors is international home repairs business Homeserve (LSE: HSV)

Like Halma, the FTSE 250 stock has performed well during 2019, up 32%. It’s done very well over the last five years too, advancing a little over 250%. Again, that’s far better than the 28% achieved by the FTSE 250 of which it is a member. 

This good form looks set to continue. In its most recent update (covering the period from the beginning of April to 18 July), the company reported that trading had been in line with expectations and that it expects “further strong growth” in the current year despite increased investment. Should that materialise, I don’t think it’s fanciful to imagine Homeserve knocking on the FTSE 100’s door in time. 

For that to happen, however, investors will need to be comfortable with the valuation of a little over 29 times forecast earnings. Another one for the watchlist perhaps?

A Growth Gem

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma and Homeserve. 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.