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Diploma (LSE:DPLM) is one of them FTSE100companies with the best results over the last five years. And it looks like it’s going to get even better.
That’s enough to turn a £1,000 investment into £23,959, and the latest update shows the company is going from strength to strength. So should investors be thinking about buying?
Growth
Diploma reported a 17% enhance in revenue in the six months to the end of March. Greater margins meant a 36% enhance in earnings per share.
Below the surface you can clearly see where the growth is coming from. Here is a summary of the growth of individual Diploma units:
| Department | Organic growth |
|---|---|
| Controls | 26% |
| Seals | 2% |
| Life Sciences | 4% |
The Controls department distributes items such as cables and fasteners. These companies are currently benefiting from robust demand.
Increased defense spending drives demand for aerospace components. The construction of data centers resulted in gigantic sales of cables.
As a result, Diploma increased its forecast for this year and the company’s shares rose. But is this the time to be greedy when others are afraid?
Risks and rewards
The risks associated with the Diploma are obvious. It sells in cyclical end markets, and if demand weakens in the aerospace or data center industries, growth could tardy dramatically.
With a price-to-earnings (P/E) ratio of around 31, the company’s stock could plummet in such a case. And it’s not like something like this hasn’t happened before.
At the beginning of 2025, Diploma’s revenue growth slowed down and the share price dropped by 20% within two months. This is the risk of gigantic multiples and cyclical industries.
However, investors may notice that the stock is still up 47% from previous highs. So even buying at the wrong time turned out to be good.
Does this give long-term investors permission to consider buying? I’m not so sure about that.
When to buy?
The latest Diploma results are great, but I’m a bit hesitant. I’m trying to determine how much of this is due to momentary factors.
The company’s declared ambitions do not fill me with confidence. The goal is 5% annual organic revenue growth. In my opinion, this does not justify the current P/E ratio. Apart from the Control department, the results were not even that.
When the company’s shares tumbled last year, they were boosted by demand for the aerospace and data center industries. But I don’t think it will last forever.
I’ve seen what happens when cyclical industries lose momentum. And that makes me cautious about jumping on today’s prices.
I may be wrong, but…
I had Diploma shares but sold them in 2023. The reason was uncomplicated – I was afraid of the high valuation and possible deterioration of the economic situation.
By the time the stock dropped, its price had already increased by 75% from the price at which I sold it. So he never got back to that level.
This means that I cannot predict when a downturn may occur. But I’m not convinced anyone does this.
Given that investors cannot know everything, the focus should be on what they can know. And I think it points in one direction.
The diploma is certainly something worth paying attention to. However, in my opinion, there are more attractive stocks that are worth considering right now.
Stephen Wright has no position in any of the companies mentioned.
