Quality… but at a price

Belfast-based IT solutions provider Kainos (LSE: KNOS) is down to report interim numbers on 15 November. Having more than doubled adjusted pre-tax profit to £57.1m in the previous financial year, it’s not unreasonable to think that the good times have continued. After all, the need for organisations to digitally transform their operations has never been greater.

This could be good news for the KNOS share price which has already climbed 61% in the last 12 months. I say ‘could’ because this really depends on whether the company is able to meet investors’ (lofty) expectations.

Kainos ticks many of my ‘quality growth’ boxes. High margins? Check. Strong returns on invested capital? Check. Low/no debt? Check.

The problem is that all this comes with an exceptionally high price tag of 53 times forecast earnings. So the risk here is that any slight misstep or loss of trading momentum might be poorly received by the market.

As things stand, that’s not an ideal risk/reward trade-off. Hence, I’ll be watching next month’s activity with interest.

Ticking time bomb?

I’ll also be following FTSE 250 member Watches of Switzerland (LSE: WOSG). Like Kainos, investors in the luxury timepiece retailer have enjoyed a brilliant run of late. Its stock is up a little over 180% since the end of October 2020.

Based on its Q1 update, I think there’s a chance this momentum will carry on when H1 results are revealed on 9 November. Back in August, the company said trading in the UK has been “exceptionally strong” and that the US business was seeing “excellent, broad-based growth”. Group revenue hit £297.5m — more than double that achieved over the same period last year.

WOSG shares currently trade at 33 times earnings. While still pricey, that’s far more palatable than its FTSE 250 peer’s valuation. Then again, operating margins in this line of work aren’t exactly massive (9% last year). It makes you wonder what might happen to investor sentiment if consumers begin to tighten their belts again as lockdown savings run out. 

Could this growth stock actually be a ticking time bomb? We’ll soon find out. 

Contrarian pick

Also on my watchlist is respirator and ballistics expert Avon Protection (LSE: AVON). Of the companies mentioned here, this is the one I’d be most likely to buy next month.

Labelling Avon as a ‘great’ growth stock may seem odd. The shares have plunged in value recently following news of order delays, supply chain disruption and a “tight labour market“.

To me, these issues are temporary. Even so, external forces could impede Avon for a while yet. As a result, I don’t expect a quick rebound when full-year results are revealed on 23 November. That’s despite the company saying it possessed a “strong order book” earlier this month.

Still, shares trade at under 20 times forecast FY22 earnings. This looks reasonable for a leader in a niche market with significant barriers to entry. Contrarians are also being compensated with dividends, although the yield is just 1.7%.

Taking into account this margin of safety, I’ll be hovering over the ‘buy’ button next month. 

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Avon Protection and Kainos. 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.

“Very strong performance”

By contrast to so many UK-listed stocks, Kainos said it had “delivered a very strong performance” during the coronavirus pandemic. For a company that specialises in enabling other businesses to ‘digitally transform’, that’s not particularly surprising. However, the numbers are really quite something. 

Revenue climbed 23% to £107.2m over the six months to the end of September. Positively, the vast majority of this was organic, highlighting how Kainos isn’t dependent on acquisitions for growth.

Broken down, Digital Services remains the biggest contributor to the top line. Here, revenue rose 16% to £71.4m, helped by the company’s partnership with the UK government in the latter’s digital transformation programme. This has included supporting the NHS as it battles Covid-19.

Elsewhere, revenue from its Workday Practice area jumped 41% to £35.8m as the Belfast-based business continues to support customers such as Warner Music and Blackberry. 

All told, pre-tax profits doubled to £24m compared to the same period in 2019!

Now for the bad news…

Is this FTSE 250 stock too expensive?

Shares in Kainos already traded at 41 times forecast earnings before this morning’s report was released. That’s an eye-watering valuation for any company at the best of times. It’s even loftier when markets face the toxic trio of Brexit, lockdowns, and longer-term pandemic-related economic pain.

Notwithstanding, there are a few reasons why I think this company could still make money for me if I were to buy. For one, there’s the near-term outlook. Thanks to a “robust pipeline” and “significant contracted backlog,” Kainos is upbeat on trading over the rest of the current financial year.

Second, the £1.5bn-cap still has lots of room to grow. Indeed, CEO Brendan Mooney believes the coronavirus will “continue to accelerate the already strong demand from customers for digital transformation and Workday services as organisations adapt to the changes that the pandemic has brought.” 

The fact that Kainos is recruiting more people is certainly a positive sign. Headcount was up 11% on the previous year, even after a temporary pause following the coronavirus outbreak. What a contrast to other FTSE 250 stocks! 

Although most definitely not income-focused, it’s also encouraging to note the rise in dividends paid out to holders.

Today, the FTSE 250 constituent announced a stonking 83% increase to its interim dividend to 6.4p per share. In addition to this, a special dividend of 6.7p per share was also declared. If I owned the stock, I’d take this as a sign of just how bullish Kainos is on its future. 

Finally, Kainos has many of the hallmarks of a quality operator — exactly what I look for. As well as being highly-cash generative, the company has £62.5m in net cash. As you might expect from a business providing software solutions, operating margins and returns on capital employed (ROCE) are also consistently high. 

Bottom line

With its vertigo-inducing price tag, Kainos will be anathema to value investors. Given the choice over buying a beaten-up, debt-laden straggler and a solid growth share that can be held for years, I know which would get my vote. 

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Kainos. 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.

Today, I’m highlighting two examples I believe are likely to make their owners considerably richer, so long as they’re prepared to buy and hold. 

5G ready

FTSE 250 constituent Spirent (LSE: SPT) provides communications testing and connectivity kit to more than 1,500 customers around the globe in sectors as diverse as defence, healthcare, and financial services. It’s a leader in what it does and, right now, business is good.

Earlier this month, the company reported a “strong” performance over the first half of the year, despite some impact from the coronavirus. Order intake and revenue were up 6% and 7% respectively. A “material increase” in adjusted operating profit from $20.7m last year to $39.5m in 2020 was also booked. Cue a sharp rise in Spirent’s share price.

At 27 times earnings, this company’s now far from cheap. Then again, great stocks are rarely without friends for long. Indicatively, the company ticks the boxes for rising margins and returns on capital. It’s in solid financial shape with oodles of cash on the balance sheet. Although unlikely to attract income hunters, the 12% hike to the interim dividend also suggests confidence on the part of management.

By far, the most interesting part of the investment case for me is the company’s exposure to the 5G market. The fact that many organisations will turn to Spirent for support when it comes to deploying infrastructure and related equipment makes me think those buying this tech share now could be richly rewarded later down the line.

Booming tech share

Fellow FTSE 250 member Kainos (LSE: KNOS) is another stock worth backing, in my view. The IT consulting and software solutions provider is ideally placed to take advantage of a growing demand for ‘digital transformations’ as a result of the coronavirus pandemic.

Reflecting the recent boom in business, Kainos now expects full-year revenue will come in “well ahead” of previous expectations. Adjusted profit will also be “substantially ahead” of forecasts, thanks to demand from its near-400 customers around the world.

Another bit of good news was the 6.7p per share special dividend. This goes some way to making up for the lack of final payout from the previous year (which coincided with the coronavirus outbreak). The cherry on the cake was the announcement that cash returns would now carry on as usual. 

Naturally, all this hasn’t gone unnoticed by investors. Having soared 130% since March’s market crash, Kainos’s shares now sit on a valuation of 51 times forecast earnings. It may be that they now pause for breath. After all, the company still can’t estimate the impact Covid-19 will have on its customers. 

Like Spirent, however, Kainos has all the things I look for in a ‘buy and hold’ investment. Earnings are nicely diversified by customer and geography. Returns on capital employed are consistently high too. At the time of its update, the firm also held cash of more than £62m and zero debt. 

All told, I think Kainos is one to tuck away for a few years. Should markets crash again, I’ll be backing up the truck.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Amazon, Apple, and Microsoft. The Motley Fool UK has recommended Kainos and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. 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.

Despite this, the stock could offer investment appeal over the long run. It has an improving financial outlook, with its dividend expected to increase over the next few years. And since it trades on a low valuation, it may offer impressive investing appeal relative to the FTSE 100.

Of course, it’s not the only stock which could be worth a closer look. Reporting on Monday was a small-cap share which could generate impressive investment performance, in my opinion.

Improving prospects

The company in question is digital services and platforms provider Kainos (LSE: KNOS). It released a trading update for the period from 26 November to date that reflects strong momentum within its core markets. Its performance for the 2019 financial year is also expected to be ahead of previous guidance.

Notably, the company has been able to deliver strong growth in its Digital Services division, which is benefitting from high demand. Meanwhile, the Digital Platforms segment has also been able to see growth in line with previous expectations.

Looking ahead, Kainos is forecast to post a 27% rise in net profit in the current year, followed by further growth of 13% next year. Since the stock has a price-to-earnings growth (PEG) ratio of just 1.2, it appears to offer a margin of safety. As such, now could be a good time to buy ahead of what may prove to be a period of strong performance for the business.

Turnaround potential

As mentioned, RBS faces a number of risks which could hold back its share price performance in the near term. Brexit is yet to reach its conclusion and this could lead to investors pricing in a margin of safety for companies with exposure to the UK economy. Furthermore, risks facing the world economy from a rising US interest rate and a weakening trading relationship between the US and China may cause a continued shift towards risk aversion among investors.

However, the prospects for RBS continue to improve. Under its current management team, the business has been able to grow its bottom line, and further growth of 5% is expected in the current year. The end of PPI claims later this year could mean that the wider banking sector is under less pressure over the medium term. And with the stock trading on a price-to-earnings (P/E) ratio of 8.8, it appears to offer a margin of safety, versus a number of other FTSE 100 stocks.

Since RBS is expected to increase dividends this year so that it yields over 5%, it could become an increasingly appealing income share. With shareholder payouts due to be covered 2.2 times by profit, there could be scope for further dividend growth over the medium term.

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Peter Stephens owns shares of Royal Bank of Scotland Group. The Motley Fool UK has no position in any of the shares mentioned. 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.

The question is, with earnings exploding, is now the time to buy this high-tech growth play? 

Time running out? 

After a strong start to 2018, Kainos now expects its numbers for the year ending 31 March 2019 to be “ahead of current market expectations.” As City analysts had been expecting the company to report earnings per share (EPS) growth for 2018 of a staggering 31% before the release, it’s not surprising the market has reacted positively to the update confirming that the business will beat City expectations.

Kainos provides tailored digital solutions to the public and private sector to help enterprises better manage their operations. It has some big-name clients, including the UK Home Office, Primark and Diageo. One of its primary offerings is services related to the Workday human resources management platform. Here Kainos aims to use its digital experience to produce bespoke human resource management solutions for customers. 

All of the above indicates to me that Kainos has an extremely defensive business model. Producing tailored software systems for clients virtually guarantees the client will remain with the business, locking in potentially many years of recurring revenue for the firm. Using this approach, the company has been able to grow revenue at a compound annual rate of 26% since 2013. Net profit has expanded at a compound annual rate of 27%.

I reckon this is just the start of its growth story. With revenues of £113m predicted for 2019, Kainos is still small-fry in the global tech business. There is a multi-billion pound market out there for the group to capture. 

With this being the case, even with the stock trading higher by 12% at the time of writing, I think the shares could increase significantly in value over the next five to 10 years. The company has tremendous blue-sky potential. 

Security growth 

NCC (LSE: NCC) is another IT sector growth stock I believe could produce huge returns for shareholders. NCC operates in one of the hottest sections of the tech market today, cybersecurity. 

Hackers and criminal gangs looking to take advantage of weaknesses in computer systems are getting smarter every day, and it is a race for companies such as NCC to stay ahead. Analysts estimate the size of the global cybersecurity market could hit $230bn by 2022, up from $75bn in 2015. It is unlikely to stop there. The market will likely continue growing exponentially as tech continues to dominate our everyday lives. 

With revenues of just £255m predicted for 2019, NCC is another a small fish in a massive pond. Fiscal 2017 and 2018 were mixed years for the company. Revenue continued to grow, but the firm was forced to report a loss and commissioned a strategic review as it tried to run before it could walk. 

Analysts are expecting a full recovery in 2018 with EPS growth of 151% targeted. Further, EPS growth of 15% is slated for 2020. Based on these estimates the stock is changing hands at 23 times forward earnings. Despite the firm’s troubles last year, I believe this multiple is justifiable considering the size of NCC’s potential market.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of NCC. The Motley Fool UK has recommended Diageo. 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.

City analysts believe that the company is on track to report earnings per share growth of 19% for 2017, followed by growth of 15% for 2018 as the Eastern Europe-focused airline expands its fleet and enters new markets. 

Today, the company issued yet another upbeat traffic report showing growth across the board for the firm. 

Rapid growth 

According to today’s update, based on trading for August, Wizz’s capacity expanded by 21.3% year-on-year and the number of passengers flying with the airline rose 24.4%. Load factor for the period increased 2.4 percentage points, from 93% to 95.4%. 

To help support growth, management recently won approval from shareholders to purchase 10 additional brand new A321ceo aircraft from Airbus to be delivered during 2018 and 2019. The airline desperately needs this new capacity as it opened 17 new routes during August and is planning more new routes over the next 12 months to meet growing customer needs. 

Undervalued? 

Despite Wizz’s rapid growth, shares in the company look relatively cheap, which is why, despite gains of nearly 100% since February, the company could still produce lucrative returns for investors. 

At the time of writing, the shares trade at a forward P/E of 15.2 and after factoring-in projected earnings growth, the shares trade at a PEG ratio of 0.8, indicating that they offer growth at a reasonable price. 

Digital champion 

Kainos (LSE: KNOS) flies under the radar of most investors, but that does not mean you should ignore the company because it provides essential digital services. For example, its healthcare division, Kainos Evolve, recently has signed a deal with Health Service Executive of Ireland and Saolta University Health Care Group in Galway for the provision of its Kainos Evolve Electronic Medical Record product. This contract, which is set to run for three years, with provision for a further two-year extension, comes on top of the group’s existing contracts with 35 NHS Trusts to use the same software helping 33m patients. 

There’s a high demand for Kainos’s software and services. For the period to the end of March, the company reported an order backlog of £76.4m, around one year of revenue. And today the company published a trading update noting that it continues to have “a very strong pipeline” and an “increasing pipeline of business in continental Europe.” Furthermore, the update reports that the company expects “results for the full year ending 31 March 2018 to be in line with current market expectations.” City analysts have pencilled in earnings per share growth of 5% for the year, followed by growth of 21% for the following fiscal period. 

Unfortunately, the market has already realised Kainos’s potential and shares in the company trade at a relatively high forward P/E of 28.3. However, the business is highly cash generative and has grown book value at a compound annual rate of 31.6% for the past five years, justifying the high valuation. The firm is also earning a return on equity of 37.4%, making it one of the most productive companies in the UK. As growth continues, shareholders should be well rewarded. 

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Shares in software company Kainos (LSE: KNOS) had a shaky first year after flotation, getting an EU referendum-linked hammering last June. But since then, momentum has been picking up and the price has soared by 85% in less than a year, to 230p — even after a 4% drop on results day Tuesday.

The response to the results looks like a common event — a high-flying growth company reports some unexciting figures, and the price drops. Are people right to be selling today, or are we looking at a buying opportunity?

Analysts did have a fall in earnings per share of 12% pencilled-in, and the actual figures depend on how you look at them — there was a reported 18% fall, which is worse than that, but adjusted EPS fell by only 10%, which was better.

Either way, it seems like a short-term trifle to me. The provider of digital services and platforms reported a 9% rise in revenues and analysts are predicting a return to EPS growth for the coming year, with it accelerating the year after. 

Global growth

Chief executive Brendan Mooney spoke of “strong growth in Digital Services, driven by demand from existing customers, new customer acquisition and geographic expansion,” and reckoned the firm is “well-positioned for growth in the coming years.“

This year’s earnings blip is at least partly down to “the funding challenge in the NHS,” but Kainos is expanding its global operations — a new office in Frankfurt brings its tally of European and US offices up to eight. And after the financial year ended, a new contract has seen the firm providing services to 38 US hospitals.

There’s a dividend too, up 5% and ahead of expectations, for a modest 2.7% yield — but it’s looking nicely progressive.

A Woodford punt?

One thing you can definitely say about Neil Woodford is that he’s not afraid of taking a blue-sky risk on companies that are not yet profitable — especially in the healthcare and biotechnology field. Horizon Discovery (LSE: HZD) is one, and though it only accounts for a tiny portion of his CF Woodford Equity Income Fund, he holds a number of similar picks.

I reckon Mr Woodford’s approach to blue-sky growth is sensible. It’s a very high risk strategy, and having a basket of different stocks should greatly improve your safety — and, after all, you really only need one or two to come good.

Horizon is into the very exciting field of therapeutic gene editing, and this month told us it “has gained exclusive worldwide rights to use a novel transposon-based technology platform that will broaden Horizon’s gene editing capabilities,” which was co-invented by its own head of innovation. It’s mainly funded by downstream royalty payments, so shouldn’t impact the cash position too much in the short term.

Jam soon?

Full-year results released Tuesday revealed a 19% rise in revenue to £24.1m, including a 45% rise in product revenue to £11.3m, and a gross margin boosted to 54%. So while there’s no profit yet (and none forecast for the next two years — though losses per share should be getting close to break-even before too long), I think these figures do provide appealing promise of profits within the next few years.

There are no meaningful fundamental ratios here, but if you’re prepared to take a bit of a punt, I see Horizon as having attractive potential.

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Encouraging progress

The market for learning technologies is growing. In the long run, it could continue to offer above-average growth prospects as the learning industry gradually becomes increasingly digital. As such, companies operating within the sector, such as Learning Technologies (LSE: LTG), could enjoy a tailwind.

It reported encouraging full-year results on Wednesday. Its revenue increased by 42%, while recurring revenues were 170% higher. Furthermore, it was able to increase its exposure to non-UK economies at a time when the UK is experiencing an uncertain future. This could prove to be a shrewd move and may allow the business to take advantage of weaker sterling in future.

The acquisition in January 2016 of Rustici Software has thus far proved to be highly successful, with its performance ahead of expectations. It has also recently acquired NetDimensions, which could have a further positive impact on its financial performance. And with greater use of the company’s blended service strategy, its organic growth rate looks set to remain strong in future years.

With earnings growth of 16% forecast for the current year, Learning Technologies has a price-to-earnings growth (PEG) ratio of just 1.7. This indicates that its shares could rise and help you to generate a seven-figure portfolio.

Income and growth potential

Also operating within the digital services segment is Kainos (LSE: KNOS). Surprisingly for a technology company, its income prospects are relatively bright. It currently yields around 2.4%, but is expected to increase dividends per share at an annualised rate of 14% over the next two years. However, this will still leave it with sufficient capital to reinvest for future growth, since the company’s dividend coverage ratio is expected to be upwards of 1.7 in the next financial year.

The reason for such a high coverage ratio is partly due to the growth forecasts for the business. Its bottom line is expected to increase by 6% in the current year, and then by 23% next year. Despite such a positive outlook, its shares trade on a PEG ratio of only 0.8. This seems difficult to justify when the company has a bright outlook and looks set to reward its shareholders by paying a rapidly increasing dividend.

Clearly, there is no guarantee that Kainos will make you a millionaire. But its shares seem to offer a wide margin of safety, as well as improving income prospects. Therefore, they could improve your portfolio performance and help you to achieve seven-figure status.

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Software star?

Shares in Kainos Group (LSE: KNOS) climbed by 6% this morning to 166p, after an upbeat trading update told us of “good growth in the public sector” in its Digital Services division, and the company maintained its guidance for the full year.

Kainos offers enterprise computing software and IT services, and counts both public and private organisations among its customers — the firm has secured new contracts with the Home Office and the National Offender Management Service, and with Tullett Prebon.

Expectations for the year to March 2017 currently include a modest 7% fall in earnings per share, which would put the shares on a prospective P/E of a bit under 17. That’s more highly valued than the long-term FTSE average and might not seem like a screaming bargain, but on top of that, there’s a dividend yield of 3.7% expected — and forecasts for the next year would lift that yield to 3.9% while dropping the P/E to just 14.8.

In its last full year reported in May, Kainos (which only floated on the stock market in July 2015) reported no debt, £15m in cash, and net assets of £25.9m. It’s a strongly cash generative business, and it seems to be attracting good approval ratings from customers.

There’s little in the way of independent broker recommendations, but I reckon Kainos could be a bit of an overlooked growth candidate, especially after it said that “although the outcome of the UK’s referendum on Europe brings with it some uncertainties, the group continues to see immediate opportunities for growth.“

Brexit recovery

There were plenty of screaming bargains in the post-referendum rout, and it looks like Smurfit Kappa Group (LSE: SKG) might be one of them. The packaging firm saw its shares drop 11% just after the Brexit vote, but since then we’ve seen a 24% rise to 1.995p, including a 2% lift today — the price is now actually 10% up since the eve of the momentous event.

The company’s first-half results appeared on the Monday after the vote and they looked pretty strong with decent pre-exceptional EBITDA growth of 8%. At the time, the firm pointed out that it’s a “UK-based business that is broadly self-sufficient with UK mills and UK corrugated plants servicing the local economy,” adding that any Brexit effect is likely to be indirect via possible hits to overall GDP and business confidence.

Smurfit Kappa has recorded years of strong earnings growth, and though forecasts suggest that growth should slow down this year and next, we’re still looking at forward P/E multiples of only around 11.5 this year, dropping to 11 next, with dividend yields around the FTSE average at 3.2% to 3.4%.

The City’s analysts seem to think the shares are cheap, putting out a pretty strong buy consensus — I agree with them, and I see Smurfit Kappa shares as a solid long-term investment.

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Software star

Shares in software specialists Kainos (LSE: KNOS) have exploded back above the 200p marker in Wednesday business, the release of an encouraging trading update driving shares 6% higher on the day.

Kainos advised that it expects trading to be in line with expectations for the year to March 2016, before noting that market conditions in the public sector continue to improve. The firm added that “this is expected to result in a further gradual increase in opportunities across government departments”.

On top of this, Kainos advised it had signed a five-year deal with InTouch Health, a “telehealth” services provider. The move will see the company’s Evolve Integrated Care SaaS platform used in 1,500 hospitals across the US and Europe.

Broker Barclays Capital expects earnings to surge 12% in the current year before advancing an extra 9% in fiscal 2017. A P/E rating of 20 times may not be cheap, but I believe Kainos deserves serious examination from those seeking exceptional growth potential.

Fossil fuel fears

Engineering play Smiths Group (LSE: SMIN) also furnished the market with fresh trading details on Wednesday, although the market greeted the release with much less fanfare. Smiths Group advised that revenues slipped 3% during July-January, to £1.37bn, a result that sent pre-tax profit 9% lower to £189m.  The company’s shares were recently 2% lower from Monday’s close.

A robust performance from the company’s medical and detection divisions helped Smiths Group broadly meet broker estimates, although the results highlighted the ongoing pressures for its John Crane oil and gas division — sales here tanked 13% in the first half of the year.

City consensus suggests that earnings should slip 14% in the year to July 2017, resulting in a P/E multiple of 14.7 times. Although this reading is more than respectable on paper, I reckon the prospect of further weakness across its oil-based operations — a segment responsible for roughly 30% of total sales — makes Smiths Group a risk too far at the current time.

Set to correct?

Diversified miner Anglo American (LSE: AAL) has been one of the FTSE’s major chargers since the start of February, the business gaining 75% in value during the period as commodity prices have rallied.

But returning fears over the strength of the global economy — and more specifically concerns over the impact of Chinese economic rebalancing — has seen raw material values, along with market appetite for Anglo American and its peers, begin to slip lower again in recent days. The company’s shares were last dealing 1% lower from Tuesday’s close.

I have long argued that the rapid ascent of the mining and energy sectors has been build on dodgy footing thanks to the chronic supply imbalances across major commodity markets.

And with expectations of a 58% earnings dip leaving Anglo American on an elevated P/E rating of 28.7 times, I reckon the stock is in danger of a harsh price correction.

The post Should You Snap Up Anglo American plc, Smiths Group plc & Kainos Group PLC Today? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.