Is Spirax-Sarco a Hidden Gem on the FTSE 100?

Why This Industrial Stock’s Drop Could Be a Rare Buying Opportunity

Spirax-Sarco Shares Slide – Time to Panic or Pounce?

Shares in Spirax-Sarco Engineering plc (LSE: SPX) have dropped by 35% over the past 12 months. For a high-quality FTSE 100 industrial stock, that’s a significant fall – and it could present a rare opportunity for long-term investors.

What Does Spirax-Sarco Do?

Spirax-Sarco is a global engineering group that designs and manufactures systems for steam, electric thermal energy, and peristaltic pumping solutions. These systems are vital to manufacturing processes across industries, helping control temperature and fluid flow in precise, technical environments.

Because its technology is often mission-critical, Spirax-Sarco enjoys sticky customer relationships and recurring revenues, especially from after-sales servicing.

Why Has the Share Price Fallen?

The company’s recent performance has been hit by a combination of short-term pressures:

• Weak demand in China, a major industrial market.
• Rising interest costs due to a jump in long-term debt.
• Cyclical downturn in industrial spending post-COVID.

Since 2016, the firm’s debt has ballooned from under £100 million to over £870 million, largely due to a series of acquisitions aimed at broadening its product offering.

While these moves helped drive growth, the higher interest burden has put pressure on margins and earnings growth. As a result, investors have punished the stock.

Is the Valuation Attractive?

Despite the challenges, Spirax-Sarco now trades at a price-to-earnings (P/E) ratio of around 22 – significantly lower than its historical average.

But more telling are its price-to-sales (P/S) and price-to-book (P/B) ratios, which are at their lowest levels in a decade. This suggests the market may be overly pessimistic, especially if demand begins to recover.

Could This Be the Next Rolls-Royce-Type Recovery?

The situation bears striking resemblance to Rolls-Royce during the pandemic. It too faced plummeting demand, surging debt, and investor scepticism – before rebounding dramatically.

If Spirax-Sarco can stabilise its margins and continue paying down debt, it could follow a similar trajectory.

Final Thoughts: A Rare FTSE 100 Bargain?

While not without risk, Spirax-Sarco shares offer long-term potential at a historically cheap valuation. For investors seeking a high-quality engineering company with global reach, this could be a once-in-a-decade chance to buy low before sentiment turns.

Sources: (MSN.com, The Motley fool UK)