After crashing 29%, Spectris shares look cheap to me

One English pound placed on a graph to represent an economic down turn

Every day, for market commentary and colour and to keep me informed, I scour the Financial Times, Bloomberg, and other leading newswires. On Wednesday, I read an excellent article by Kate Burgess, who has worked for the FT since 1998 and in the City of London before that. The article, “Can engineers find a magic formula for investors?” reviewed the prospects of six British engineering firms whose shares appear rather unloved this year. While reading, one unfamiliar company caught my eye — Spectris (LSE: SXS), whose shares have collapsed since last September.

Spectris shares slump

Although I’m familiar with many members of the FTSE 250 index, Spectris has somehow never caught my eye. And that’s a shame, because Spectris shares have rebounded strongly since their 2022 low of early March. Here’s how the Spectris share price has performed in the past 12 months. Current share price: 2,954p; 52-week high: 4,167p on 27 September 2021; 52-week low: 2,371p on 7 March 2022.

As you can see, after peaking in late September, Spectris shares plunged, losing 43.1% from high to low. But since early March, this stock has rebounded, adding 583p — almost a quarter (24.6%). Alas, I only wish I’d known to buy this stock at March’s bargain price.

Spectris still looks cheap to me

With origins dating back to 1915, this FTSE 250 firm has been in business for 107 years. But what does Spectris do? It produces precision measurement instruments, test equipment, and simulation software for various industries (including pharmaceuticals, automobiles, and electronics). Alas, its shares dived when the company made a takeover approach in February to rival Oxford Instruments. But the Russia/Ukraine war that began on 24 February soon killed his bid.

At their current price, Spectris shares are down 29.1% from their September high. As a result, the company’s fundamentals look attractive to me as a veteran value investor. Here they are:

Share price (p) 12-month change Market value Price-to-earnings ratio Earnings yield Dividend yield Dividend cover
2,954 -6.8% £3.2bn 9.7 10.3% 2.4% 4.2

At today’s price, Spectris shares look like a classic value investment to me. An earnings yield of 10.3% means the dividend yield of 2.4% a year is covered more than four times. I like the sound of that. Also, in its latest quarterly results, the company’s strong balance sheet included £133.1m of net cash. And the group recently began a £300m share buyback.

To sum up, Spectris sells specialist products at high profit margins in niche markets. Even so, it is not immune from worries such as rising inflation and interest rates, supply-chain constraints, slowing growth, and the risk of a global recession. That said, though I don’t own this stock yet, I’d gladly buy Spectris shares at their current levels!

The post After crashing 29%, Spectris shares look cheap to me appeared first on The Motley Fool UK.

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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Spectris. 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.