A good deal in the FTSE 100 where the shares are on sale and growth prospects are promising is rare.
Don’t get me wrong, those companies do exist. However, the really good ones trading at a low price are often few and far between.
And it’s often a matter of timing the market. That’s a strategy I’m not too fond of for several reasons.
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My strategy
First, if I look for companies that are below their highest levels according to different metrics, I’ll miss out on great growth opportunities. These are likely to be priced fairly or slightly overvalued.
Second, if I wait around for low prices and refuse to buy shares when they’re trading at normal levels, I could miss massive movements in the market over time.
Idle cash never got anybody rich. What does get people rich in the world of finance is picking the right companies and holding them ‘forever’. That’s something Warren Buffett recommends, too.
Thankfully, if I already own a company and the price then goes down, I can always buy more shares. That’s if a paycheck comes through or I decide to liquidate some other investments.
With that in mind, here’s a FTSE 100 darling that I’d be happy to buy now. I think it’s strong and priced just about right.
Operations and end markets
Diploma (LSE:DPLM) is an international distribution group. It provides controls, seals, and life sciences products and services through a decentralised model of connected independent businesses.
Its net sales are geographically proportioned among North America (55%), the UK (20%), Europe (17%), and other regions (7%).
25% revenue growth!
My favourite financial element of the business is its three-year average annual revenue growth rate of 25%. I find this staggering.
With growth like that, I can only see the stock price going in one direction: up.
Its revenue growth can be attributed to organic growth from diversified revenue streams, strategic acquisitions, and a ‘value-add’ distribution model.
And if we look at the historical trend for Diploma, we can see this is exactly the direction the stock has been going in:
A fair price, but I’m watching the valuation
All things considered, the current share price seems fair to me. However, I’m cautious because, on a traditional valuation front, these shares do seem to be priced quite high.
I guess people can tell when there’s a winner in the game. So much so that the company’s price-to-earnings ratio is around 40!
For perspective, that ratio is worse than 88% of 121 companies in the industrial distribution industry.
The bottom line
Some stocks are so good everybody knows it. Diploma seems to be one of these. If I had some spare cash right now to invest in a new company, I would certainly consider these shares as a top priority.
