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If I had known five years ago that buying and holding UK growth stocks would more than triple my investment, I would have bought them! But what if I bought it today?
No one knows what will happen in the future. But in this growth stock scenario, I see continued reasons for optimism about the business. I intend to buy it for my portfolio to last for the next five years – or longer.
Warren Buffett type moat
The company in question Scientific judges (LSE: JDG)
Many may not even have heard of it, as it is a large business-to-business manufacturer specializing in scientific instruments. That might not sound like much fun – but from an investment perspective, I think it is.
This is the reason. Judges apply strict criteria to buy small equipment that comes up for sale, for example when the founder retires. So while the firm skips overpriced deals, it can buy some quality companies at competitive prices.
By bringing it to a broader organization, Judges can provide capital and management expertise to accelerate growth in a cost-effective manner.
But why are scientific instruments such an attractive industry to start with? The reason is that accuracy (and therefore quality) is important. That gives a producer like Jury Warren Buffett-style leverage and pricing power.
Outstanding financial performance
The proof of the pudding is in the eating.
While Judge Scientific’s stock price has performed well over the past five years, that simply reflects the impressive business performance over that time. Over the five years to 2021, revenues grew 59 percent, adjusted operating profit rose 154 percent and dividends increased 140 percent.
In my opinion, there are many things to like there. Revenue growth was strong. But I think what’s even more interesting is the way profit growth has outpaced revenue growth. That suggests that Judge’s centralized services model is allowing subsidiaries to grow, without increasing the cost base at the same rate.
I think the jury model not only works well, but I think it can continue. Demand for scientific equipment from users such as industrial laboratories and universities can be sustained even in an economic downturn.
But there are still risks. Inflation can eat into profit margins. Continued travel restrictions in markets such as China could affect sales as engineers are unable to make site visits and install equipment.
Why do I still want to buy this growth stock?
Still, Jury’s share price has risen 272 percent over the past five years. Although last year’s 9 percent growth was very modest, the judges rewarded long-term shareholders handsomely.
It currently trades at a price-to-earnings ratio of 38. This is quite a bit more expensive than I usually consider when buying stocks for my portfolio. But I will be willing to buy. why? I think it has the hallmarks of a classic growth stock. It leverages a smart business model focused on meeting real customer needs in a way that empowers pricing. Unlike some growth stocks, Arbitrage is consistently profitable. I believe the unique business model will provide additional revenue growth in the future.