Companies that fly under the radar are often the best candidates for a Stocks and Shares ISA. Take Diploma (LSE:DPLM) as an example. It isn’t a household name and yet, since April 2016, it’s delivered a total return (capital growth and dividends) of around 760%.
Unfortunately, I’ve missed out on this huge gain. But it’s never too late to repent. Let’s take a closer look at the little-known FTSE 100 distribution company.
Who?
Diploma provides critical products to industrial and commercial customers across a wide range of markets. The group’s divided into three divisions – Controls, Seals, and Life Sciences – contributing 55%, 29%, and 16% respectively to the £1.52bn of revenue reported for the year ended 30 September 2025 (FY25).
Among other things, the group says: “We provide the bolts that hold planes and race cars together, design the seals that make wind turbines work, and help surgeons find the best solutions to save lives”.
An impressive track record
And because it’s good at what it does, from FY19-FY25, it achieved an average annual increase of 18% in both revenue and earnings per share (EPS).
Over the past five years, it’s increased turnover by 94%, more than doubled its adjusted EPS, and improved its operating margin by 3.6 percentage points. It also has an impressive track record of raising its dividend. In fact, the group’s increased its payout by an average of 13.1% a year over the past 10 years.
However, despite this, its remarkable share price performance has pushed its yield lower. Its dividend is now 242% higher than it was and the end of FY15. But the stock’s yield has fallen from 2.7% to 1%.
Potential challenges
Given such a strong financial performance, the stock now trades at 38 times its historic (2025) earnings. Normally, this would make me wary. On the face of it, the group’s shares are expensive.
However, if it were to continue growing its EPS at 18% annually, its price-to-earnings ratio would drop to around 23 within three years, assuming its share price remained unchanged. After five, it would be less than 17.
Looking at it this way, Diploma’s stock appears much more attractive to me.
But the group’s earnings could come under pressure if the global economy suffers a post-Iran slowdown, which looks increasingly likely. In particular, the aerospace sector could take a big knock if fuel costs remain high.
In 2025, 37% of its revenue came from the UK and Europe. Before the current trouble in the Middle East started, economies on the continent were hardly going gangbusters.
Also, some of the group’s anticipated growth is expected to come from acquisitions. Since 2019, it’s spent £1.4bn buying 48 businesses. There’s a chance that the pipeline of opportunities will dry up.
Final thoughts
Despite this, the group upgraded its full-year guidance in March. Previously, it said it was expecting year-on-year revenue growth of 6% and a 22.5% operating margin. Now, it’s predicting 9% and 25% respectively. The aerospace sector and North America’s nuclear power industry were singled out as being the biggest contributors to growth.
For now at least, I believe this positivity continues to justify the group’s valuation.
In my opinion, Diploma’s one of a number of FTSE 100 unsung heroes I’m considering that I think investors could also think about for their Stocks and Shares ISAs.
