The FTSE 250 nanotechnology tools provider Oxford Instruments (LSE: OXIG) saw a 15% share price increase after the company posted a positive trading update today.
Why the Oxford Instruments share price is up
The company mentions three developments that reflect well on its performance in this update. I think these can explain the increase in the Oxford Instruments share price. They are:
#1. Orders: The company saw a good order increase in the second half of the financial year ending 31 March 2020, which benefited from Chinese growth.
#2. Revenues: Despite adverse currency developments, it expects revenues to be “marginally ahead” of last year. This is particularly good news in comparison to last year. Its revenue was actually marginally down for the financial year 2020 from the year before, even after negating the impact of currency fluctuations.
#3. Operating profits: These are expected to be between £55m and £57m for the current financial year. Last year it reported an operating profit of £50.5m. So, this year it expects to see at least 9% to 13% from the year before.
This update in itself bodes well for the company, but there is more going for it too:
#1. Resilient financials
Even though Oxford Instruments’ revenues have not shown consistent growth over the years, I like that it has remained consistently profitable. That it is expected to continue the trend of financial resilience even for the current financial year is something to note in a year when many other companies have struggled.
#2. Share price growth
Given its relative financial stability it is little wonder that the Oxford Instruments share price continued to rise in 2020. However, more important is the growth seen since November last year, when the stock market rally started and many other high-performing shares fell out of favour with investors.
Within days of the rally, its share price jumped 30%. While it started softening in February this year, it is back near its all-time highs of December, 2020 as I write.
#3. Dividends return
While Oxford Instruments is more a growth stock than an income one, it does pay a dividend. It had paused dividend payouts when the pandemic struck, but by November it had reinstated them at their 2020 levels.
The yield is a small 0.2% but I think the fact that it has started paying dividends again is confirmation of its confidence in this year’s performance.
The risks to Oxford Instruments
There can be some downsides to investing in Oxford Instruments too. One, 2020 growth was buoyed by Asian growth. But the pandemic can come back to haunt us all over again, which will tell on its performance, needless to say.
Two, its share price has run up quite a bit already. I am not sure if it will continue to look as attractive to investors once the lockdowns have lifted and pandemic-impacted companies start coming back to health.
The upshot
At the same time, the company has proven itself over time and functions in a market that is growing in double-digits annually. Even with a short-term decline in the Oxford Instruments share price, I reckon it will be a riser over time, making it a good stock for me to buy.
