FTSE 250 company Oxford Instruments (LSE: OXIG) delivered its preliminary results report on 13 June and the shares remained steady on the day.
However, the adjusted figures were good for the trading year to 31 March 2023. Revenue increased by 14% year on year on a constant currency basis. And adjusted earnings per share shot up by 19.5%.
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Yet the progress had been previously well-flagged. And the share price was up with events. But despite a full-looking valuation, I think this high-technology company has hidden value. And it may make a decent long-term holding in a diversified portfolio of shares even now.
Value is building in the business
I’m not the only investor to see attraction in the company’s long growth record and compelling business model, however.
Back in February 2022, fellow FTSE 250 constituent Spectris put in an offer to buy Oxford Instruments at 3,100p per share. On 13 June as I write, the stock is changing hands at just over 2,731p. So, it’s below the value that Spectris placed on it at the time.
Ultimately the deal didn’t proceed. However, since then we’ve now had the cracking results of another full trading year.
And that means value has been building up in the business. In fact, the company managed to increase its net cash position in the period by almost 17% to just over £100m. And one of the attractions is the strength in the balance sheet.
But cash balances and low borrowings don’t sort themselves out unless there’s a strong, cash-producing business backing it up. And on that score, the company is doing well.
Over the past few years, revenue has delivered a compound annual growth rate of just over 4%. And that’s filtered through to produce normalised earnings growing at nearly 8% and operating cash flow of 7.5%.
Strong stock performance
Meanwhile, judging by the history of the share price, steady progress has been going on for some time. Some 20 years ago, we could have picked up some of the shares for about 180p each. And they’re more than 15 times higher now.
Over the last year alone the stock has gone up by around 30%.
But the strong action of the stock has led to one of the main sticking points for investors considering it now. And that’s valuation.
City analysts expect earnings to rise just 2% or so in the current trading year to March 2024. And set against that expectation, the forward-looking earnings multiple is almost 25. That’s a big ask considering growth may have stalled in the short term.
Indeed, the chunky valuation is a clear and present risk for investors now.
But last year, Spectris said: “Oxford Instruments’ highly attractive, differentiated technologies are leaders in their fields.” And I reckon such market strength and the company’s phenomenal growth record indicates ‘hidden’ value in the stock.
Meanwhile, the current outlook statement has an optimistic tone. And I think the business is worth further research with a view to establishing a long-term position in the shares.
