Rotork's Share Price - How Much Should We Pay Up For Quality?
Jack Brumby | Apr 11, 2019 07:03
Rotork (LON:ROR) is large cap stock in the Industrial Machinery & Equipment industry. Stockopedia classifies the company as a 'High Flyer' due to its favourable exposure to quality and momentum factors.
The United Kingdom-based actuator manufacturer is often described as a company with a moat. It has a five-year average return on equity of 19.2% and a five-year operating margin of 18.0%. But these persistent quality attributes come at a price: Rotork's shares trade on a rolling P/E ratio of 25.6 and a rolling PEG of 1.72.
This profile is reflected in Rotork's factor ranks. It has:
- a Quality Rank of 99,
- a Momentum Rank of 60, and
- a Value Rank of only 19.
A combination of high quality, high momentum and low value is great when earnings go up but a bad place to be when things go wrong. The higher they rise the harder they fall, after all.
How volatile is Rotork's share price?
So, High Flyers tend to be riskier and more volatile than the market average. But is this true of Rotork?
We can find out quickly by applying Stockopedia’s RiskRatings system, which divides stocks into five groups according to stock price volatility. The five classifications (from most to least volatile) are:
- Highly Speculative (30% of the market),
- Speculative (25% of the market),
- Adventurous (20% of the market),
- Balanced (15% of the market), and
- Conservative (10% of the market)
Rotork is an adventurous stock. This means that the group is in the more volatile half of the market in terms of stock price volatility, as might be expected of a High Flyer. Those looking to invest here should prepare themselves for a potentially bumpy ride.
One thing in Rotork’s favour is its above average five-year return on capital employed figure of 20.6%. Being consistently profitable to such a degree over multiple years suggests that Rotork can back up its favourable factor exposures with some kind of economic moat and, hopefully, make any share price volatility more bearable in the short term.
This attractive blend of factors and profitability characteristics has been noticed by the market - Rotork has a one-year relative strength of 5.56%.
Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.
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