Still too dear?

When it comes to identifying great businesses, high-precision metrology and healthcare technology firm Renishaw (LSE: RSW) has regularly ticked a lot of the necessary boxes: high returns on capital employed, fat operating margins, a global leader in what it does with an experienced management.

Despite this, the company’s share price has certainly struggled of late, falling almost 40% in value from the highs hit back in January 2018 by the end of trading yesterday. 

Today’s trading update for the three months to the end of September hasn’t helped matters. Indeed, the stock was down another 12% as markets opened. So what’s going on?  

Put simply, Renishaw is continuing to feel the effects of reduced demand for its equipment. Revenue over the period was £124.6m — 19% lower than the £154m achieved over the same quarter in 2018. While last year’s number was helped by a few large orders from manufacturers in the Asia-Pacific region, this is still a significant drop. Pre-tax profit also fell a shocking 85%, from £33.5m over Q1 2018 to just £5.1m this time around.  

To make matters worse, there’s little sign of this malaise ending soon with the company reiterating its view that trading would “remain challenging” for the rest of the current financial year due to the uncertain economic conditions. All perfectly reasonable, of course, but not what its investors want to hear.

Renishaw’s stock was trading on almost 26 times forecast earnings before this morning. That’s punchy, even for such a quality outfit that still has net cash on its balance sheet (£98.5m), in addition to all its other attributes.

While a resolution to Brexit could see a brief recovery in many second-tier stocks, I’m not inclined to get involved just yet given this is still higher than its five-year average P/E of 23. One to come back to in 2020, I feel. 

Far more upbeat

Despite bearing similar hallmarks of quality (e.g. consistently high ROCE), shares in recruitment specialist Hays (LSE: HAS) — like those of Renishaw — have been under pressure for a while now. Go back a little over a year and the business was valued 46% more than it was at the close of play yesterday. By contrast to its index peer, however, today’s Q1 update was far more positive.

While group net fees fell by roughly 1% over the period — again blamed on “difficult economic conditions and tough growth comparatives” — 10 countries grew quarterly fees by over 10% and eight “still delivered all-time records“. Far from being gloomy on its outlook, CEO Alistair Cox also said he was confident the company’s strong market positions and finances (£90m in net cash) would allow the company to negotiate these tricky times while also investing for the future. Cue a 6% jump in the share price.

Shares were trading on 13 times forecast earnings earlier today — not unreasonable compared to its peer group and less than its average five-year P/E of 16. The 4.2% dividend yield might also be adequate compensation for some while they await a recovery.

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

I’d say that’s still unlikely for now. That’s why I continue to like meat processor and FTSE 250 business Cranswick (LSE: CWK), even if its share price has been rather volatile since last October following years of solid gains.

Does the positive reaction to today’s full-year results indicate that now might be a good time to buy in? I’m inclined to think so. 

Big investment

Statutory pre-tax profit for the year to the end of March came in at £86.5m — a slight reduction on the £88m achieved in 2017/18. At £1.44bn, revenue was pretty much flat. 

As CEO Adam Couch commented, however, these numbers were achieved “against a backdrop of highly competitive market conditions and ongoing, Brexit-related, political and economic uncertainty” and following “three years of very strong growth”.  

Despite the slight drop in profit, there’s still much for prospective investors to like.

For one, like-for-like volumes of pork exported to Asia jumped 16.1% as a result of African swine fever ravaging China’s pig herds. According to the company, the damage done could last for a number of years. 

Less specifically, Cranswick continues to generate very decent returns on capital employed, a metric regarded by one of the UK’s best fund managers as extremely important. This came in at 18.4% for the last financial year. 

The company continues to boast net cash on its balance sheet, even if the £6.3m announced today is down from the £20.6m last year. The 4.1% increase to the full-year dividend (to 55.9p per share) was also nice to see.

Perhaps most importantly, Cranswick continues to invest in its assets to enable it to expand in the future.

A total of £79m was spent in 2018/19 to “add capacity, extend capability and drive efficiencies”. The firm is currently building a new poultry facility in Suffolk and recently completed a Continental Foods facility in Bury. 

For such a quality company with still-good growth prospects, I think 20 times earnings is a reasonable price to pay. 

One for the long term

Another FTSE 250 stock that I think could be a decent long-term buy is metrology firm Renishaw (LSE: RSW).

That’s despite the fact that its shares — like those of Cranswick — have been unsettled of late due to the company enduring a period of difficult trading and less demand for its products in Asia. 

Clearly, whether Renishaw’s share price changes direction or not will depend on whether conditions improve (not to mention the speed of a resolution to the ongoing trade spat between China and the US). It’s already had to cut guidance on revenue and pre-tax profit twice this year.

Taking this into account, I understand why some investors may want to hold off buying for now. 

That said, Renishaw’s seriously high returns on capital and operating margins shouldn’t be ignored. Nor should its £120.5m net cash position.

As we never tire of saying at the Fool, it’s the quality of a business that matters in the long run, not what the shares do in the near term.

It’s on my watchlist for now.

The post Time to take advantage of recent weakness in these quality FTSE 250 stocks? appeared first on The Motley Fool UK.

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

One such firm that’s done particularly well for loyal holders has been global pest control firm Rentokil Initial (LSE: RTO). Had you purchased the stock three years ago, the value of your capital would have more than doubled by now.

This is not to say that the company still can’t make money for new investors. Today’s trading update was, after all, reassuringly issue-free.

Ongoing revenue moved 11.8% higher in Q3 to £637.4m with just over a third of this being generated organically and the remainder coming from acquisitions.

Revenue from pest control increased 11.4% thanks to good performance in both growth and emerging markets. Decent weather in Europe and the UK did the company’s top line no harm while ongoing revenue also increased by 12.1% in the US. Elsewhere, revenues from the firm’s Hygiene division (Initial) rose by 22% over Q3.  

I’d be surprised if this kind of growth trajectory ended any time soon, especially given the number of deals recently sealed. The £5.8bn cap purchased 16 other businesses over the quarter bringing the total number of acquisitions to 39 so far in 2018. With plenty more targets in its sights for Q4, one can only guess at what the final number for the year will be.        

After initially climbing in early trading, Rentokil’s share price was flat by mid-morning. This is perhaps to be expected for a company that’s already trading on almost 25 times forecast earnings, reducing to 22 next year assuming earnings estimates are hit and the share price doesn’t budge.

Nevertheless, should you be looking for a steady, reliable growth play to hold for the long term, I continue to believe that it more than fits the bill. And while dividends are still very low — the 4.75p per share expected next year equates to a yield of just 1.5% at the current share price — levels of free cash flow continue to rise, suggesting that the company should continue the trend of double-digit hikes to the payout going forward.

Another winner

Like Rentokil Initial, global metrology and healthcare firm Renishaw (LSE: RSW) has been a great performer, more than doubling in value over the last three years (and that’s after taking into account the recent slide in its share price). Renishaw also revealed an update on trading this morning. 

At £154m, total revenue was 7% higher at constant currency in the three months to the end of September compared to the same period last year. Predictably, the metrology division continues to bring in the vast majority of cash (£147.4m) but Renishaw’s healthcare business did manage to grow revenue by 25% to £6.6m, again once foreign exchange fluctuations are accounted for.

While a fall of 9% in adjusted pre-tax profit to £32.6m may explain the initially negative reaction to today’s update, the gradual rise back to positive territory suggests that shareholders are comforted by the company’s belief that it is now “well placed to benefit” from recent investment and management’s ongoing confidence on revenue and profit growth in the current year, despite our forthcoming departure from the EU.

If only the same could be said for other stocks. 

The post Why I’d consider holding this FTSE 100 growth stock until retirement appeared first on The Motley Fool UK.

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

This is the conundrum likely to be facing many holders of metrology specialist Renishaw (LSE: RSW). Stock in the Wotton Under Edge-based business more than doubled in price over 2017, even if some of those gains have been given up in recent weeks following the release of its latest set of first-half numbers. 

Over the six months to the end of 2017, revenue grew by 20% at constant exchange rates to just under £279.5m with adjusted pre-tax profit rising 73% to £62.3m.

Renishaw saw growth in all of its metrology product lines over the reporting period with its additive manufacturing and measurement and automation lines the standout performers. Elsewhere, the adjusted operating loss of £1.9m in the company’s healthcare business was far better than the £6m loss in the previous year thanks to growth in its spectroscopy and neurological lines.

Clearly in something of a purple patch, the company now expects revenue for the full year to be “in the range of £575m to £605m” and adjusted pre-tax profits to come in somewhere between £127m and £147m. A “further reduction in losses” in the aforementioned healthcare division is also anticipated. 

With a solid balance sheet (£69m net cash position at the end of 2017) and history of generating consistently high returns on the capital it invests, there can be little doubt that the £3.5bn cap is a quality operation. Right now however, I’d be tempted to shave some profit.

With shares changing hands for 29 times forecast earnings, a lot of positive news and future growth appears priced in. There’s not much in the way of dividends and the departure of co-founder David McMurty as the company’s CEO, despite retaining his role as executive chairman, is an unwelcome if inevitable development.

“Good progress”

With Renishaw’s valuation looking frothy, fellow engineer IMI (LSE: IMI) could be a better option at the current time.

Today’s final results were in line with expectations, despite “mixed market conditions“. In addition to making “good progress” on its strategic initiatives (which included improving operational performance and launching new products), the Birmingham-based business also disclosed further progress in tackling its global pension liabilities. 

While unspectacular, the numbers were still fairly positive. Revenue rose 6% to £1.75bn with adjusted pre-tax profit climbing 8% to £224m. Net debt fell from £283m in 2016 to £265m by the end of last year.  

According to CEO Mark Selway, IMI now expects organic revenues to be higher in the first half of 2018, with a “modest improvement” to margins. The recent acquisition of Bimba —  a manufacturer of pneumatic, hydraulic and electric motion solutions — should also help facilitate the growth of the company’s Precision Engineering division in North America. 

Clearly, this wasn’t enough for the market, with IMI’s stock falling 8% in early trading this morning. Nevertheless, at 16 times expected earnings, I think the company represents better value than Renishaw at the current time. A 3.7% dividend yield for 2018 is also far more attractive than the 1.2% offered by its industry peer.

The post Time to ditch this high-flying FTSE 250 growth stock? appeared first on The Motley Fool UK.

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

But as lawmakers intensified their war on smoking I sold my entire stake, and the FTSE 100 giant’s heavy share price slide since then has vindicated my decision.

Fellow Footsie play British American Tobacco (LSE: BATS) is, needless to say, another share facing the same escalating earnings pressure as Imperial Tobacco. Despite the strength of market-leading brands like Pall Mall and Dunhill, global cigarette demand continues to fall as legislation from plain packaging requirements to public smoking bans have become ever-more popular.

Naturally I would encourage shareholders in British American Tobacco to follow my lead and shift out post haste. After all, there is no shortage of shares with pluckier profits outlooks that the London-based business.

Renishaw (LSE: RSW) is one such stock that I, like many others, believe investors should give close attention to today.

Ride the dip

At first glance my enthusiasm for Renishaw could be considered ill-placed given that latest trading details released on Thursday saw its share price duck sharply. It was recently down 10% on the day.

But while its first-half performance fell short of expectations, numbers were far from catastrophic and in my opinion did not justify today’s sell-off.

Rather, the plunge reflects a great deal of profit-taking following the FTSE 250 firm’s steady climb. Its market value had almost doubled in the 12 months until this morning’s update. And I reckon today’s reversal marks a prime opportunity for some shrewd dip buying.

Sales star

Renishaw saw group revenues jump 17% between January and June, to £279.5m, a result that powered adjusted pre-tax profit 72% higher to £62.3m. And this sales spurt was broad-based — at Metrology turnover leapt 18% to £264.3m, while at its Healthcare unit sales rose 13% to £15.2m.

The solid result prompted the Gloucestershire business to suggest that full-year revenues could blast through the £600m marker for the first time this year. Revenues of between £575m and £605m are anticipated for the fiscal period.

Today’s sell-off is not a huge surprise given that, as impressive as today’s numbers were, they still fell on the wrong side of City predictions. After all, Renishaw has long been an expensive share selection and, even after today’s downward spike, it still deals on a forward P/E ratio of 31.6 times.

Having said that, the prospect of strong and sustained earnings growth still makes the electronics play an appealing contender for me at least. The number crunchers are anticipating bottom-line expansion of 20% and 7% in the years to June 2018 and 2019 respectively.

City analysts are also expecting earnings at British American Tobacco to keep growing too, and rises of 13% and 7% are forecast for 2018 and 2019.

However, this leaves the company dealing on a forward P/E ratio of 15.6 times. This is far too high in my opinion given the structural decline in its traditional markets and uncertainty over the scale to which next-generation goods like tobacco-heating products and e-cigarettes can replace lost revenues elsewhere.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Renishaw. 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.

As you’d expect, such stocks aren’t usually cheap. But they can still outperform the market for long periods of time.

One example is specialist engineer Renishaw (LSE: RSW). This FTSE 250 firm’s share price has doubled over the last year, thanks to a 97% increase in earnings per share and strong forecasts for the year ahead.

From what I understand, the group’s precision measurement and healthcare technology is specialised and has relatively few competitors. The firm’s financial results certainly suggest that it has good pricing power.

Renishaw’s operating margin has averaged 23.5% since 2012, and was 21.7% last year. This helped to generate a return on capital employed of 21%. That’s well above the 15% level that I use as a benchmark for highly profitable companies.

Irresistible numbers?

This Gloucestershire firm certainly has my vote when it comes to profit margins. And the outlook seems to be improving as well. Broker consensus forecasts for 2017/18 earnings have doubled over the last year, suggesting very strong growth momentum.

However, this focus on growth and profitability doesn’t mean we can completely ignore valuation. The stock’s rapid growth has left it looking quite pricey. Renishaw currently trades on a forecast P/E of 35, with a dividend yield of just 1.1%.

Although this valuation might look reasonable if earnings rose by perhaps 50% over the next year, this isn’t expected to happen. Broker forecasts for 2018/19 suggest earnings growth will slow to around 10% next year.

In my view, the potential return from these shares isn’t high enough to outweigh the risk of a correction if the market decides the shares are overpriced. I’d continue holding, but I wouldn’t buy any more.

One stock I might buy

Another engineering stock that’s caught my eye recently is Birmingham-based IMI (LSE: IMI). The group’s main focus is products which control the movement of fluids. As you can imagine, the firm’s customers include many of the world’s largest industrial concerns, as well as the energy and power sectors.

In a trading update today, IMI said that its sales rose by 3% during the third quarter, or by 11% when exchange rate tailwinds were included. The group now expects full-year earnings at constant exchange rates to be “slightly ahead of expectations”.

IMI has many of the same attractions I see in Renishaw. The group’s return on capital employed has averaged 22% over the last five years, and cash generation is very strong.

Indeed, this means that it’s able to offer a well-covered dividend yield of 3.2%, even though its shares trade on a forecast P/E of 19.8.

In my view, IMI’s valuation could still leave room for growth. And although this business might slow in a major recession, I think it’s a quality stock that would be worth buying on the dips, rather than selling.

Averaging down on quality stocks during difficult periods gives you the chance to increase your dividend yield on cost, and boost your long-term capital gains.

The post One dividend stock I’d buy and hold for the next decade appeared first on The Motley Fool UK.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended IMI and Renishaw. 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.

Powerful growth

FTSE 250-listed Just Eat (LSE: JE) has caught the imagination of many investors since its 2014 IPO. Floating at 260p, the shares have surged to 696p, a gain of 168%. Could there be more prolific capital growth to come?

The growth story is certainly quite impressive. For those unfamiliar with the £4.8bn market cap stock, Just Eat provides customers with an easy and secure way to order and pay for takeaway food from a diverse selection of restaurant partners. The company operates across 13 ‘core’ markets, including the UK, France and Canada and connects around 19m customers to over 75,000 restaurants.

A glance at Just Eat’s financials reveals fantastic top-line growth. Indeed, over the last three years, the company has delivered revenues of £157m, £248m and £376m, a compound annual growth rate (CAGR) of an amazing 55%. Profitability has surged as well, with adjusted earnings per share rising from 4.2p in 2014, to 12.2p last year. First-half results released in July showed the momentum continuing, with orders up 24%, revenue climbing 44% and adjusted earnings per share rising 39% to 7.8p. Can this growth continue?

Looking forward, City analysts expect it to keep delivering in the near term. 36% revenue growth is expected this year, followed by 23% for next year. Earnings per share of 16.6p and 23p are forecast for this year and next.

Those earnings estimates place the stock on a forward P/E of 41.9, falling to 30.3 for FY2018. While shares in Just Eat could potentially keep rising, those valuation figures don’t leave a huge margin safety, which is something to keep in mind, given that competitors such as Deliveroo and Uber are looking to capture market share.

An even better performer

Another FTSE 250 stock performing incredibly well over the last three years is Renishaw (LSE: RSW). Hovering around 1,600p this time three years ago, the shares now change hands for 4,690p, a gain of almost 200%.

Renishaw is an engineering and scientific technology company that specialises in precision measurement and healthcare. The company’s products are used in a diverse range of applications, from jet engine manufacture to dentistry. Renishaw also focuses on metal 3D printing, whereby it designs and manufactures machines which ‘print’ parts from metal powder. The company operates in 35 countries, although the majority of its research and development is carried out in the UK.

Renishaw released a trading update this morning, and the numbers look good, in my opinion. First quarter revenue from continuing operations was £142.3m, a rise of 26% on last year, with sales being boosted by a large number of orders from Far East customers in the consumer electronics markets. Adjusted profit before tax surged 137% to £35.8m and the group had cash of £82.6m at 30 September, up from £64.8m at 30 June. Management said it remains “confident in the future prospects of the group and of achieving good growth in both revenue and profit in this financial year.”

City analysts’ forecasts of 8% revenue growth for both this year and next suggest that the company should continue to grow its top line in the near term. However, on a forward P/E of 32.3, Renishaw is also trading on a lofty valuation.

The post Just Eat plc isn’t the only FTSE 250 stock expected to deliver blockbuster growth appeared first on The Motley Fool UK.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Just Eat and Renishaw. 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.

The company, which distributes audio visual and document solutions to trade, advised that revenues shot 34% higher during January-June to £211.6m. As a consequence adjusted pre-tax profits improved 32% to £10.3m.

Stephen Fenby, chief executive, commented: “The group has performed strongly in the first six months of the year across all geographies with robust organic growth and contributions from recent acquisitions Holdan and Earpro.” He highlighted strong growth in large format displays, in particular, as well as Midwich’s progress in the developing specialist broadcast and audio segments.

Fenby added: “The strong performance reported in the first half year coupled with indications of positive sales momentum and strong contributions from recent acquisitions gives the Board confidence in reporting results for the full year in line with our expectations, which were upgraded at the time of [July’s] trading statement.”

With Midwich also reporting robust cash generation, the firm elected to lift the interim dividend 36% year-on-year to 4.17p per share.

In splendid shape

Investors should be cheered by the massive headway Midwich is making across all regions — the company saw sales increase by double-digit rates in all its territories, led by Germany and Australasia where turnover grew 47% and 44% — as well as impressive, M&A action.

The firm noted that recent buyouts have “performed ahead of expectations.” And the company’s robust balance sheet should keep the position-enhancing acquisitions coming — the firm snapped up audio visual and lighting products distributor Gebroeders van Domburg just last week for a minimum of €2.1m.

So it comes as little surprise that City analysts expect profits to rise 14% in 2017, with an extra 7% advance marked in for next year. As a consequence, Midwich deals on a forward P/E rating of 20 times, very decent value in my opinion given the terrific headway it is making across the globe, not to mention the potential for forecast upgrades further down the line.

In rude health

Renishaw (LSE: RSW) has been no stranger to stratospheric share price gains in recent times either. The healthcare engineer has seen its market value almost double since the bells rang in New Year’s Day, and I fully expect the share price to remain on an upward trajectory.

The Gloucestershire company reported record revenues of £536.8m in the first half of 2017, up 26% year-on-year, with sales growing across all healthcare segments. And Renishaw is investing heavily in its marketing and distribution facilities across the globe to keep sales on an upward bent — it forked out £42.6m in capex in the year to June 2017 alone.

The City expects Renishaw to print a further 10% earnings rise in fiscal 2018, resulting in a toppy-looking prospective P/E rating of 33.8 times. Still, I reckon the firm’s ambitious growth strategy, not to mention the huge sales potential of its ever-expanding markets, makes the business worthy of this premium.

The post 2 under-the-radar growth stocks with brilliant momentum appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the stocks mentioned. The Motley Fool UK has recommended Renishaw. 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.

Diversity

The answer is a resounding yes, and there is a global demand for it too. Despite the name, Spirax-Sarco Engineering comprises two world-leading engineering businesses: Spirax Sarco for steam and electrical thermal energy solutions, and Watson-Marlow for niche peristaltic pumps and associated fluid path technologies.

The Cheltenham-based group serves a wide range of industries, and benefits from a great diversity of end markets and customers. I see this as one of the core strengths of the business as it insulates it from much seasonal and cyclical demand. For example, in 2016 the company’s largest industry segment, food, accounted for no more than 16% of sales and no single customer in any industry accounted for sales of greater than 1% of the group total.

Excellent balance

Spirax also has an excellent balance between higher-growth end markets and those that are less cyclical and more defensive in nature. Last year, around 50% of total revenues were derived from these defensive end markets, including food & beverage, pharmaceutical & biotechnology, healthcare, chemicals, buildings (heating, ventilation and air conditioning), water & wastewater, and power generation. The remaining 50% being derived from maintenance and repair sales, supported by end users’ operational expenditure budgets.

Spirax has performed exceptionally well over the years through consistently rising earnings as well as an enviable 49-year record of dividend growth. Our friends in the City are expecting this to continue with an anticipated 21% rise in earnings for the current year to December, followed by a further 12% improvement in 2018.

But I’m getting increasingly concerned about the valuation. The share price has advanced 25% over the last 12 months, recording new highs earlier in the year, and leaving the shares trading on a high earnings multiple of 27 for 2017. I’ve no doubt the business will continue to grow, but now is not the best time to buy the shares, in my opinion.

Strong financial position

Another mid-cap firm that I believe is beginning to look rather expensive is Renishaw (LSE: RSW). The Gloucestershire-based group is one of the world’s leading engineering and scientific technology companies, with expertise in precision measurement and healthcare.

Full-year results revealed record levels of revenue of £536.8m, with adjusted pre-tax profits of £109.1m, representing a 25% increase year-on-year. The group is in a strong financial position and continues to invest in the development of new products and applications, along with targeted investment in production and sales & marketing facilities around the world.

Again, I’m increasingly concerned about the business’s valuation. The shares have continued to surge ahead this year, soaring 70% since January, leaving them trading on a lofty P/E rating of 32.

The post Are these FTSE 250 growth stocks getting too expensive? appeared first on The Motley Fool UK.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Renishaw. 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.

Adjusted profit before tax for the period increased 25%, and adjusted earnings per share jumped 32%. Statutory profit before tax increased 90%. The company also increased its cash balance to £51.9m, compared to £21.3m last year, giving it a strong balance sheet with which to pursue growth opportunities.

Throughout the financial year, the company invested nearly £50m in organic growth opportunities and capital spending. This investment came out of its full-year cash flow from operations of £115m. 

Built from the ground up

One of the reasons why it has performed so well over the years is that the company is still majority-owned by its two founders, who obviously want the business to perform as well as possible. 

Chief executive and chairman David McMurtry and deputy chairman David Deer together own around half of the outstanding shares. Further, the business has a strong work culture, encouraging talent and treating its employees well. Management has always worked hard to keep jobs rather than cut them during cyclical downturns, hence the firm’s strong balance sheet. 

Bright outlook 

Renishaw has all the hallmarks of a well-run business that works for all of its stakeholders and demand for the company’s expertise should only grow in the years ahead. 

You see, it is a leading producer of encoder, measurement and automation, calibration and coordinate measuring machine devices used in the construction of automated production systems. As demand for robotics solutions increases around the world, demand for these highly specialised measuring devices will almost certainly rise. 

With its existing experience, strong work ethic and robust balance sheet, Renishaw is well placed to capitalise on this trend and extend the record of growth the group has accomplished over the past five years. Unfortunately, thanks to the company’s recent growth and specialist nature, the shares trade at a forward P/E of 33, a high valuation but one that seems suitable for such a promising business. 

Slow and steady 

Fidessa Group (LSE: FDSA) is another specialist company that has grown steadily over the past five years. The group provides trading and investment information solutions for the financial services industry.
Over the past three years, pre-tax profit has grown by 26%, and earnings per share have risen by 20%. 

City analysts are not expecting much in the way of growth in the business this year with an earnings per share fall of 1% projected. Next year, on the other hand, growth of 8% is expected, and analysts believe the shares will support a dividend yield of 4.1%. 

Even though shares in Fidessa might seem expensive, trading at a forward P/E of 25.7, the highly specialised nature of this business means that it is unlikely to see a substantial decline in revenue or profitability.

The post Renishaw plc is a terrific stock for cautious growth hunters appeared first on The Motley Fool UK.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Fidessa and Renishaw. 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.