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Why I’d buy this British technology stock for its impressive growth potential

Kevin Godbold
·3-min read
Male and Female Architects Wearing Augmented Reality Headsets Work with 3D City Model. High Tech Office Professional People Use Virtual Reality Modeling Software Application.
Male and Female Architects Wearing Augmented Reality Headsets Work with 3D City Model. High Tech Office Professional People Use Virtual Reality Modeling Software Application.

Who says all the technology stocks are in America! I think we’ve got a few of our own in the UK worth backing, such as Oxford Instruments (LSE: OXIG). Although the Covid-19 pandemic has affected the company’s operations, trading continued through the crisis. And today’s half-year results report reveals the forward potential for growth.

Why I think Oxford Instruments is a top technology stock

A scoot around the company’s website left me impressed by the range of techy products. If I’m looking for solutions in the areas of Atomic Force Microscopy or Optical Imaging, OXIG has it covered. Or, if I want to address my needs in Electron Microscopy, Nuclear Magnetic Resonance and Modular Optical Spectroscopy, I’d look no further than the company’s catalogue.

Chief executive Ian Barkshire said in today’s report the company is positioned to provide high technology products and services “to the world’s leading industrial customers and scientific research communities.” And those customers use the company’s kit to image, analyse and manipulate materials down to the atomic and molecular level.

And the numbers stack up well. There’s a multi-year record of profitable, cash-backed trading and the company has even been paying shareholder dividends. Meanwhile, the operating margin has been running around 12.5% and OXIG has achieved a return on capital just below 15%. I reckon those quality indicators suggest the company commands a well-defended trading niche in the market.

However, today’s figures reveal a small dent to trading caused by the pandemic. Revenue slipped by 11% year on year, and adjusted earnings per share eased by just under 9%. But cash from continuing operations rose by just over 52%. And the firm’s net cash position on the balance sheet ballooned from around £14m to just over £81m.

Growth in orders

And “robust” trading and positive cash generation through the period led to the directors declaring an interim dividend of 4.1p per share. I think that’s encouraging because the firm cancelled last year’s interim dividend in the early stages of the pandemic.

Looking ahead, Barkshire explained there was “strong” order growth in the first half of the year and a “good improvement” in the order book. He expects the full-year performance to be “a little behind” last year but ahead of current analysts’ forecasts. And he thinks the company has “a solid foundation for future growth.” Meanwhile, the market appears happy with what it sees. Indeed, the share price is buoyant today.

However, I think the valuation remains fair for a company with such long-term growth opportunities. With the share price at 1,900p, the forward-looking earnings multiple is just over 31 for the trading year to March 2022. And the anticipated dividend yield is around 0.8% with earnings expected to cover the payment around four times.

I’m tempted to buy a few shares and tuck them away for the next 20 years to see how the growth story unfolds.

The post Why I’d buy this British technology stock for its impressive growth potential appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Motley Fool UK 2020