Judges Scientific (LSE: JDG) has been the stuff of dreams for long-term investors. Over the past 15 years, this small-cap stock — which is part of the FTSE AIM All-Share Index — has risen by around 3,400%! That’s not including dividends, which have likewise marched higher.
Yet this once-reliable performer has hit a sticky patch recently. The share price is down 47% in the past year.
Might this represent a buying opportunity to consider?
What is Judges Scientific?
The company specialises in acquiring and developing businesses within the scientific instrument sector. It specifically focuses on small/medium-sized enterprises with strong commercial positions in niche global markets. The group now owns 25 businesses.
As the long-term share price performance indicates, this strategy worked a treat for a long time. Revenue rose from £77.9m in 2018 to £136.1m in 2023, with earnings doubling across that period.
However, last year was challenging. It marked only the fourth time in 19 years that it was unable to beat the figures achieved in the previous year. Revenue dipped 1.8% to £133.6m, while pre-tax profit declined 3% to £13m.
The company’s performance was impacted by the delay of a significant coring expedition by one of its subsidiaries, Geotek, as well as broader market weakness. Over the entire year, orders from China/Hong Kong fell by 34%.
Acquisition strategy continues
It wasn’t all negative, though. A contract for a coring expedition in Japan was signed in August 2024, and Geotek subsequently started that in January. Coring, by the way, is the process of extracting samples from earth or seabed layers (one of those niche markets).
Meanwhile, the buy-and-build strategy continued as the group snapped up three more firms for a total of £20.6m. Management says that there are “a multitude of small global niches” to go after in future.
One attractive thing to note here is that Judges Scientific is very careful when it comes to the price it pays to acquires a business. Founder-CEO David Cicurel has led the firm for two decades. He owns approximately 8.2% of Judges Scientific, giving him significant skin in the game.
Also, despite the challenges, the dividend was hiked 10% last year to 104.5p per share. The yield is only 1.6%, but the firm says that “retaining a healthy cover of 2.7 times adjusted earnings per share” will enable sustained payout progression.
A discounted valuation
My view here is that this is a high-quality compounder that has hit a temporary speedbump. How temporary though is anyone’s guess, as economic conditions remain volatile, especially in China and the US. This is impacting scientific investment and spending.
Meanwhile, export tariffs and supply chain issues could make Judges’ products more expensive to manufacture and sell, hurting competitiveness. Another risk is that China is actively encouraging domestic consumption ahead of Western-made instruments.
The flip side to all this is that the stock’s valuation now looks relatively attractive. Based on current forecasts for 2025, the forward price-to-earnings multiple is a reasonable 17.5. The price-to-book ratio is 5, its lowest level since 2018.
Meanwhile, the consensus 12-month share price target among analysts is 10,450p — around 61% higher than the current level. While that doesn’t guarantee anything, it does suggest the shares might be undervalued.
On balance, I think the stock is worth considering.
