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Have £2k to invest? I think this FTSE 250 growth stock could be great ISA addition

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When it comes to deciding which stocks to hold in my Stocks and Shares ISA these days, I’m always more inclined to go for established, high-quality firms who’ve shown an ability to withstand whatever the market can throw at them over heavily-hyped growth plays. 

One example of the former, at least in my view, is FTSE 250 member Victrex (LSE: VCT). It might not be a company on the lips of most retail investors but its track record more than speaks for itself. 

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Victrex supplies a high-performance (but also very light) polymer called PEEK that’s employed in a huge variety of products we use everyday without even knowing it. PEEK is, for example, very likely to be in your smartphone, car and vacuum cleaner. It’s even used in hip replacements. 

Despite the original patent expiring many years ago, Victrex remains the product’s market leader and has few competitors able to match its resources and expertise. It’s also been a big winner for investors with its share price rising a staggering 2,400% between early 2000 to late-2018.

That said, Victrex is susceptible to the odd sticky patch, as evidenced by today’s full-year results. 

Profits down

Despite logging decent growth in the Aerospace, Energy and Medical markets over the 12 months to the end of September, performance was offset by what the company regarded as “a deterioration in the second half in Automotive, Electronics and Value Added Resellers (VAR).”

Group sales fell 15% to 3,751 tonnes over the year, leading revenue to fall 11% to £294m. Pre-tax profit also declined 18% to £127.5m.

Notwithstanding, CEO Jakob Sigurdsson said the company’s full-year performance had been “in line with expectations,” which probably explains why the share price fell initially in early trading only to recover later in the morning.

As far as the outlook is concerned, Victrex believes the Automotive and Electronics markets are now “showing signs of stability” even though it expects “current trends will continue” for a while yet.

Encouragingly, it also reported making progress with its “mega-programmes” and product pipeline, including a first commercial order for Aerospace composite parts, the signing of a long-term alliance with Airbus, and “strong growth” in its products for the Spine market.

So, is it worth buying now?

Based on analyst estimates, Victrex’s shares change hands at a little over 20 times forecast FY20 earnings right now. That’s clearly not cheap, relative to the general market (and its own five-year average valuation of 18), but nor does it seem ludicrously expensive, considering the company’s potential to enter new markets and its record of delivering consistently stellar returns on the capital it invests. Margins are reliably high and the £2bn-cap has a squeaky-clean balance sheet. 

On top of this, Victrex is also a decent source of income. Despite recent headwinds, today’s final dividend was maintained at 46.14p per share, giving a total return of 59.56p per the whole year or a trailing yield of 2.55%. Considering the business’s cash-generative nature, I’ve no concerns over the security of payouts going forward.  

So, while today’s numbers might have been greeted with a collective shrug by investors, I remain firm in the belief the company is a worthy addition to most portfolios with a long-term perspective. 

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Paul Summers owns shares of Victrex. The Motley Fool UK has recommended Victrex. 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.

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