Why Shares In Renishaw plc Sky-Rocketed Today

Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What: Shares in world-leading metrology company Renishaw (LSE: RSW) were up over 11% in early trading today after the company released yet another positive revenue and profit forecast.

So What: Management predicted full-year revenue between £425m and £445m and adjusted profit before tax of between £95m and £105m. Taking the lower end of predictions, this represents a 20% sales growth and a whopping 35% jump in profits. After last year’s sales increase of only 2.5%, faster progress will be welcome news to investors.

In an update released in early October, management reported record first-quarter revenues for £101m, driven by a massive 60% increase in orders from the Far East. At the time Renishaw had expected this growth trend to continue into the second half of the year, and more orders have obviously been confirmed, allowing management to specify a range of figures.

What Now: With success this year, the obvious question is, can Renishaw keep up the good performance? In their recent interim management statement, the company reminded investors that while orders may remain unpredictable in the short term, especially those from the Far East, the continued trend of global investment in production systems and processes should drive long-term growth for the company.

Despite today’s meteoric rise, Renishaw’s share price has only appreciated 2% in the last year. Assuming earnings at the low end of predictions and a tax rate of 20%, the shares currently trade on a forward P/E of 19 and yield of 2.33%. With net cash of £44.3m and a solid record of growth, the company looks to be approaching a fair price after its rise this morning. If orders were to fall off in the short term and knock the shares down some, I would certainly consider adding Renishaw to my portfolio.

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Zach Coffell has no position in any shares mentioned. The Motley Fool UK has recommended Renishaw. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.