The Covid-19 pandemic has caused significant disruptions all around the world, especially for industrial manufacturing. However, China recently issued a stimulus package to reboot its industrial manufacturing driven-economy. This is excellent news for one FTSE 250 stock I’m watching. Let’s take a look to see whether I should buy these shares for my growth portfolio.
A fiery opportunity within the FTSE 250
Bodycote (LSE:BOY) is a world-leading provider of thermal processing services. Put simply, it takes some metals, throws them into a glorified oven, and heats them under specific temperatures and pressures to manipulate their material properties. The process drastically improves the strength, toughness, and durability of metals and alloys—an essential trait for almost all machinery components today.
The FTSE 250 company has been around for almost a century. It started out as a small textiles business in 1923. After a long trail of acquisitions, mergers and demergers, Bodycote now serves over 40,000 customers with 185 facilities across 23 countries.
It has successfully built a strong reputation for excellence within the industrial sectors. Given the skill and precision required to correctly heat-treat metals, I believe its reputation has granted quite a high level of customer loyalty, as well as pricing power. Even if a competitor offers cheaper rates, I don’t believe this alone would be enough to convince existing customers to switch.
Playing with fire can be a risky business
As previously stated, Bodycote’s brand appears to be held in high regard by its customers and the industrial sectors in general. While this has undoubtedly granted it some competitive advantages, it also adds additional pressure.
Industrial manufacturing companies typically rely on a ‘just-in-time’ supply chain. This is particularly important since Bodycote’s services are quite dangerous to perform. Accidents can happen. And while strict safety precautions help mitigate this risk, it will always be a present threat. If such a tragedy occurs, the disruptions will likely lead to delays in orders that will compromise its reputation.
Another risk to consider is the international operations themselves. By having facilities outside the UK, the business should be quite resilient to any impact from Brexit. However, an unfortunate side effect of operating internationally is exposure to fluctuating currency prices from both a sales and expenses perspective.
Bottom line: is Bodycote a FTSE 250 share to buy now?
Treating metals is not the most glamourous sounding business. But the process is essential to industries such as aerospace, energy, and manufacturing. All of these sectors have been heavily impacted by Covid-19, and these disruptions have consequently been passed onto Bodycote. As a result, revenue and profits in 2020 took a significant hit.
But now that factories are re-opening, the demand for thermal processing services is back on the rise. And Bodycote is still a leader within this space. That’s why I think now could be the best time to add the stock to my portfolio.
Zaven Boyrazian does not own shares in Bodycote. The Motley Fool UK has recommended Bodycote. 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.