Investing in science with UK shares

Judges Scientific (LSE:JDG) is a specialist developer of scientific instruments and equipment. These products are used in almost every aspect of scientific research across a vast array of industries. To name a few, industrial engineering, pharmaceuticals, healthcare, and even telecommunications actively use instruments designed by this UK stock.

While the business is heavily reinvesting in research and development (R&D), that’s not the primary growth strategy. Instead, it performs tactical bolt-on acquisitions of existing and established companies to increase its reach. After each transaction, it continues to develop the firms and use the subsequent profits to repay debt and fuel the next acquisition.

This approach has led to a portfolio of 17 businesses operating worldwide. In 2020, an additional two firms were acquired.

The first was Heath. It designs calorimetry (heat detection) instruments to test the safety of lithium-ion batteries for all electronic devices, including electric vehicles. The second designs vapour deposition systems. This technology applies surface coatings to improve material properties — an essential tool for vehicle manufacturing and even space travel.

Investing in UK shares has its risks

The bolt-on acquisition approach to growth has allowed Judges Scientific to become a dominant force in the global market space. However, it also exposes it to a considerable level of risk.

Acquisitions are expensive and final. If an acquired business doesn’t meet performance expectations, it will most likely impact the company’s financial health. Simultaneously, the investments required to bring the new business up to par reduce the capital available for the other firms in the portfolio.

I find this particularly concerning since the scientific community is constantly making new discoveries. With such rapid innovation, it’s possible for testing instruments and equipment to become obsolete in a relatively short space of time. Thus, continual investment in R&D is needed to keep up. This won’t be possible if the funds are being sucked up by a poor acquisition.

Can this grow stock double my money?

But while acquisitions will always remain a prominent threat, the growth strategy seems to be working for now. Revenues are growing by a respectable 10% annually on average. This is hardly explosive growth, but net income has nearly doubled year-on-year for the past five years.

The profit margins are still relatively low, suggesting plenty of room for improvement. And while Covid-19 had a significant impact on the business in 2020, those disruptions appear to be resolved. Therefore, I see no reason for this growth stock’s profits to stop surging in 2021.

The post Investing in UK shares: 1 growth stock I think could double my money in 2021 appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Judges Scientific. The Motley Fool UK has recommended Judges Scientific. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.