I’ve been scouring the FTSE 250 for a fast-growing momentum stock to add to my self-invested personal pension (SIPP).
This is a change of strategy for me, after years of buying struggling value stocks in the hope they would recover. Now I fancy blending in a few stocks that are pinging along nicely, in the hope their momentum carries them even further.
The first stock to catch my eye is Goodwin (LSE: GDWN), a family-controlled engineering firm based in Stoke-on-Trent. It’s been operating since 1883, when it began life as R Goodwin & Son.
That legacy still counts. Not just for tradition’s sake, but because it drives a business that focuses on quality and long-term relationships.
Decades of compounding
This company has quietly been a phenomenal performer. Shareholder returns over the past 20 years total a staggering 4,632%, including dividends and share buybacks. By comparison, the FTSE 100 has delivered just 282%, Goodwin’s figures show.
Over five years, the Goodwin share price is up 273% although the pace has slowed lately. It’s up ‘only’ 22% over 12 months.
Despite its deep domestic roots, around 70% of sales now come from overseas. That includes supplying major projects in oil and gas, mining and, more recently, nuclear decommissioning.
The Group has 18 manufacturing sites across the UK, Finland, Germany, South Africa, India, Thailand, China, Australia and Brazil.
That global spread helps smooth out local wobbles and offers access to fast-growth markets. Its specialist components, such as slurry pumps and nozzle check valves, aren’t glamorous, but they’re in demand.
Strong recent results
Goodwin’s recent updates have been encouraging. In December, it reported a 53% rise in first-half pre-tax profits to £17.1m.
Revenues rose 9% to £106.4m, and the order book rose £30m to £296m. Much of that growth came from nuclear and naval contracts.
By March, the order book had nudged up to £300m, a record. That included a $15m two-year contract win for its German subsidiary Noreva, which will supply valves to a major LNG project. Goodwin expects second-half profits to be in line with the strong first-half performance.
Waiting for August
There is one thing holding me back. Sales, revenues and other key metrics typically don’t rise with an upwards swoop, but rise and fell with the ebb and flow of new contracts. Last year’s full-year results were so good they might be hard to repeat.
Trading profit rose more than 13% from £18.9m to £21.4m, while the dividend per share climbed 16% to 133p. A share buyback added further gloss.
Expectations may have crept a little too high. The Goodwin share price now trades at a price-to-earnings ratio of 36 times. As a value investor, that looks toppy to me. But that’s the price of momentum.
The group looks well insulated from many of today’s global risks, but macro uncertainty remains. That said, LNG is booming, and the company’s position in that market could offer a long-lasting advantage.
Despite its recent strong run, I see Goodwin as more of a slow burner than a short-term rocket. But I will consider buying before the August results, with an eye on holding for the next 20 years. Let’s hope the total return is similar to the last 20, but as ever, no guarantees.
