The Diploma (LSE:DPLM) the share price is forecast to augment by just 1.79% over the coming 12 months as analyst price targets weaken.

A few weeks ago, the price dropped 9% after the release of full-year 2024 results. Despite a 14% augment in revenue and a 15% augment in profits, the results fell below shareholder expectations.

As of 2021, Diploma has seen earnings per share (EPS) augment by 25% year-on-year. This year it was only 3.63%. Revenue growth has also been sinking steadily for the past four years, down from 46% in 2021.

The destitute performance comes after the share price has risen 135% over the past five years and 32% this year alone. However, after peaking at 46.32 pounds in mid-September, growth stalled. It’s true that it quickly recovered from last month’s decline, but it hasn’t achieved much since then.

On the positive side, the final dividend has been increased to 42p per share. However, compared to the £45 share price it is barely worth mentioning, equating to a yield of just 1.32%.

So why am I still bullish on the stock?

Strong defensive qualifications

Diploma is one of my favorite defensive plays, even though it is not usually considered in this category. Although it may experience occasional fluctuations during hard periods, it is surprisingly resilient. This makes it a good option if you want not only long-term growth but also stability.

And it has a history of growth.

Over the past 30 years, the price has increased by almost 5200%, an annual augment of 14.15%.

What makes it captivating is the diversity of sectors and industries in which it operates.

As a UK-based industrial group, it provides specialist technical products and services across three main sectors: life sciences, sealing and inspection. It also operates globally, including in North America and continental Europe, serving industries such as healthcare, laboratory research and industrial engineering.

Its competitors are diverse, each operating in its specific industry, e.g Howden joinery, Dechra pharmaceutical company AND Halma. Buying out smaller competitors is a way to grow Diploma, but it also comes with risks. If he overpays for acquisitions or they don’t materialize, he could lose money.

Quotation

The stock currently appears overvalued, with a trailing price-to-earnings (P/E) ratio of 47.6. With earnings forecast to augment by 39%, it could drop to 36.2. However, this would still be well above the industry average of 14.

This may be one of the reasons why analysts do not expect the growth of previous years to continue. The average 12-month price target is around £47 – almost no change from today’s price.

I’ll admit that this is a depressing forecast considering the company’s stock has performed so well so far. However, I remain sanguine about its long-term potential and defensive capabilities. It operates in a niche market, offering a diverse range of products with varying degrees of demand.

As part of my long-term retirement portfolio, I will continue to hold Diplom shares, but I do not plan to buy any more shares today. However, I expect it to return to the steady growth for which it is known in 2026 and beyond.