Down 29% regardless of sturdy full-year outcomes and 32% forecast annual development, this FTSE 250 nanotech agency seems a hidden gem to me

FTSE 250 hi-tech agency Oxford Devices (LSE: OXIG) is down 29% from its 15 July one-year traded excessive of £26.

It was established in 1959 when it was spun off from Oxford College’s physics division. An early success was its pioneering function within the growth of magnetic resonance imaging scans utilized in medical analysis.

Since then it has been on the chopping fringe of the design and manufacture of high-tech merchandise for scientific and industrial use.

Most notably maybe, it’s a world chief in nanotechnology. This includes manipulating matter on the atomic and molecular stage to create new supplies and units. 

Why has the share worth dropped?

A key cause behind its current share worth decline was information that it has agreed to promote its NanoScience enterprise.

Nonetheless, it is very important be aware that this solely includes a part of the agency’s nanotechnology pursuits. Particularly, the bit that makes particular items to supercool quantum computer systems.

The agency highlights that the sale will increase its margin by 1.9% enhance by permitting it to concentrate on three core structural development markets. These are supplies evaluation, semiconductor, and healthcare & life science.

Furthermore, as much as £50m of the proceeds from the divestment will go to a share buyback. These are typically supportive of share worth good points.

The newest outcomes

The agency’s full fiscal yr 2024/25 outcomes noticed income rise 6.5% yr on yr to £500.6m. This was the primary time income had breached the £500m barrier.

Working revenue elevated 10.8% to £82.2m, whereas adjusted revenue margin edged up 0.7% to 17.8%.

Income is a agency’s whole revenue, whereas earnings (or ‘revenue’) are what stays after bills have been deducted.

A danger for the agency is a serious failure in considered one of its key merchandise. This may harm its status and be pricey to repair.

That mentioned, consensus analysts’ forecasts are that its earnings will rise by a whopping 32.4% annually to end-fiscal yr 2027/28.

Are the shares undervalued?

The primary a part of my evaluation of the agency’s share worth is to check its key valuations with these of its rivals.

On the price-to-sales ratio, Oxford Devices’ 2.1 studying is undervalued in comparison with its friends’ common of two.7. These comprise Bruker at 1.7, Renishaw at 2.8. Spectris at 2.9, and Thermo Fisher Scientific at 3.5.

Nonetheless, it seems overvalued at a price-to-earnings ratio of 39.7 in comparison with its peer group’s 33.3 common.

The second a part of my evaluation includes operating a reduced money stream (DCF) evaluation. That is based mostly on money stream forecasts for the underlying enterprise and pinpoints the place any agency’s share worth must be.

Utilizing different analysts’ figures and my very own, the DCF for Oxford Devices exhibits its shares are 40% undervalued at £18.44.

Due to this fact, their truthful worth is £30.73.

My view

I’m often targeted on shares that ship a excessive dividend yield, whereas Oxford Devices solely pays 1.2% at current.

Nonetheless, its very sturdy earnings development potential ought to energy its share worth and dividend a lot greater over time.

I additionally haven’t any holdings within the fast-growing nanotech sector. Particularly, analysts mission it’ll see a compound annual development fee of 34.7% by 2032.

Due to this fact, I’ll purchase the inventory very quickly.