If ever there was a stock that screamed ‘buy and hold’, I think FTSE 100 life-saving tech company Halma (LSE: HLMA) might be it. Its shares are up more than 200% over the last five years, following consistent revenue and profit growth.
Today, the company announced yet another set of record numbers for the first half of its financial year.
Profits jump!
Revenue increased 19% to a little over £737m in the six months to the end of September as the company “performed well in all sectors and major regions“. Adjusted for foreign exchange fluctuations, the growth rate comes in at 23%.
Halma’s bottom line was even better. Statutory pre-tax profit jumped a heady 74% to £167.5m, albeit boosted by the sale of its security systems business (Texecom) for £34m.
As if this wasn’t good enough, the company also decided to leave its full-year guidance unchanged despite rising costs and “increased supply chain, logistics and labour market disruption”. Other FTSE 100 constituents can’t afford to be quite so optimistic.
This is not to say today’s statement was devoid of caution. For example, Halma noted that “more typical rates of revenue growth” were expected in the second half. This may help explain why the shares were off almost 2% this morning.
FTSE 100 quality stock
Based on this update and the long-term performance of its share price, I’d buy a slice of Halma today. The company operates in a highly defensive sector that should continue growing, regardless of the wider economic environment. As a global business, earnings are nicely diversified and there’s little in the way of debt on the balance sheet.
It’s also worth mentioning the dividends. A forecast yield of 0.6% won’t attract income seekers. However, Halma has grown its annual payout by 5% or more for 42 consecutive years. That sort of trend is only seen in businesses of the highest quality. With a “healthy acquisition pipeline“, I can’t see it ending anytime soon.
The only real concern I have rests on the valuation. A forecast P/E of almost 50 is extremely rich. As such, I wouldn’t be going ‘all in’ on this FTSE 100 stock now. Picking up bigger chunks of HLMA when markets are crashing would be the dream scenario.
From little acorns
Of course, Halma isn’t the only attractive ‘buy and hold’ option out there. Small-cap SDI (LSE: SDI) is another quality stock I’d snap up. The firm designs and manufactures digital imaging products for fields as diverse as life sciences, healthcare, astronomy and art conservation. And, right now, business is booming.
Earlier this month, the AIM-listed company said it expects to report “very strong sales and profits” for the first half of its current financial year. As a result, full-year revenue of £45m and adjusted pre-tax profit of £9.2m have been forecast. Encouragingly, both numbers were higher than what analysts had been predicting.
On the downside, SDI shares aren’t cheap. A P/E of 30 suggests there’s little room for error. Especially as management already expects the heavy demand seen for its Atik cameras over the pandemic to reduce. Once again, supply chain pressures are a potential headwind.
Still, I’m confident this could become another multi-bagging stock by 2030 if recent progress is anything to go by. I regard SDI as a buy today. But I’d really get stuck in when markets next wobble.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma. 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.
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