Pioneering technology firm Oxford Instruments (LSE: OXIG) has been a top FTSE 250 performer over the past year.The stock has gained around 80% from its 2 June 2025 opening price of £17.90. And it now trades around an all-time high.
This is very good news for me, as I bought the shares at much lower prices. But it now raises the natural question of whether the stock’s valuation has stretched too far.
So, what have I found after a deep dive into the fundamental business and its key valuations?
What do the relative valuations say?
As a long-term investor, I place only limited weight on comparing one company’s valuation multiples with another’s. Unless they are forward‑looking, these measures simply reflect where the share price has been, not where it is going. And even forward multiples only look 12 months ahead, as do the price targets of analysts.
However, these ‘relative valuations’ can offer a quick way to see where a stock sits in the broader valuation landscape.
So, Oxford Instruments’ forward price-to-sales ratio of 4.1 looks expensive compared to its peers’ average of 3.5. These firms include Bruker at 2, Spectris at 2.8, Thermo Fisher Scientific at 3.4, and Renishaw at 4.7. The same pattern appears in its 5.1 price‑to‑book ratio, which sits well above the 3.6 average of its competitors.
However, the picture is more mixed on the forward price‑to‑earnings measure: Oxford Instruments trades on 36.3 times earnings, below the peer‑group average of 40.1.
What does the deeper valuation reveal?
To gain a clearer sense of whether the current price is genuinely stretched, I need to examine the stock’s ‘fair value’.
In my experience in investment bank trading, the best way to calculate this is through discounted cash flow (DCF) analysis. It focuses on valuing the underlying business by estimating its future cash generation and discounting it back to today to give a per-share price.
When those forecasts are less certain, the discount applied increases, and analysts’ DCF valuations may vary, depending on their assumptions. But based on my own DCF modelling — including an 8.7% discount rate — Oxford Instruments looks 19% overvalued at its present £32.15 price.
That suggests a fair value of £27.03 — significantly lower than where it trades today.
My investment view
Generally, if a stock I own reaches this level of overvaluation, I will sell it. And in this case, I would make a tidy sum.
However, there is a complicating factor here. It is that analysts’ forecast earnings growth for Oxford Instruments means it may well grow into its fair value in a relatively short time.
There are risks to these projections, of course, as with all companies. A disruption in supply chains could pressure margins, as would a failure in any of its new products.
But analysts’ expectations are that its average annual earnings growth will be a whopping 38.5% to end-2028 at minimum.
Given this combination of clear overvaluation today and unusually strong forecast earnings growth, I am inclined to hold my shares for now. If the business delivers on those projections, the valuation gap could close naturally over the next couple of years.
But if the price continues to run ahead of fundamentals, in this rare case I may take profits and look to buy back lower later on.
Should you invest £5,000 in Oxford Instruments Plc right now?
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Simon Watkins owns shares in Oxford Instruments Group.
