2022 has been a difficult year for FTSE 250 stocks. The index has fallen by around 19% since the beginning of January.
But falling share prices can be an opportunity to look for stocks to buy. As Warren Buffett notes, whether it’s socks or stocks, it’s better to buy quality when it’s selling at a discount.
With that in mind, I’ve been looking at the FTSE 250 to find stocks to buy at today’s prices. And I think I’ve found one that I’d be happy to buy.
Should you invest £1,000 in Diploma Plc right now?
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Diploma
The stock is Diploma (LSE:DPLM). I already own this stock in my portfolio and it’s my largest UK investment.
Diploma is a distributor of specialist industrial components. It divides its business into three segments – controls, seals, and life sciences.
Since the start of the year, Diploma shares have fallen by around 13%. I bought this stock when it was a bit cheaper, but I think that the underlying business justifies today’s share price.
At the moment, Diploma stock trades at a price-to-earnings ratio of around 39. That’s quite a lot, but it’s important to note that the business is expanding at an rapid pace.
Growth
Last month, the company released a trading update. The results are impressive – revenues are 29% higher than they were a year ago.
Around half of that revenue growth comes from businesses that Diploma has acquired. This presents the biggest risk for the company.
When companies grow by buying other businesses, there’s an inherent risk of overpaying. Given that acquisitions account for around half of Diploma’s growth, this is a significant risk, but there are two reasons I’m not that worried.
The first is that Diploma has a solid track record. The company has shown good discipline in terms of sticking to buying companies at low prices in the past.
Additionally, Diploma’s size gives me encouragement. Wth net income of around £95m, even small acquisitions can still make a meaningful difference to its profits.
I therefore expect the company should have a broad range of acquisition opportunities available. This should mean that management can be selective in what to buy.
A stock to buy?
I think that the quality of Diploma’s business and the growth that the company is generating makes it a quality stock. That’s why I’d be willing to buy it for my portfolio at today’s prices.
The company is already my largest UK investment, though. And I want to make sure that I’m invested in a broad range of different companies.
As such, I’ll be considering adding a bit to my Diploma investment. But if I didn’t own the shares already, I’d be looking at making it a significant part of my portfolio.
