Is Now The Time To Buy IMI?

I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at IMI (LSE: IMI) to determine whether you should consider buying the shares at 1,165p.

I am assessing each company on several ratios:

Price/Earnings (P/E): Does the share look good value when compared against its competitors?

Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?

Yield: Does the share provide a solid income for investors?

Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

The consensus analyst estimate for this year's earnings per share is 80.7p (1% growth) and dividend per shareis 32.3p (8% growth).

Firstly, it should be noted that IMI saw explosive earnings per share (EPS) growth in 2010 and this to some extent has skewed the figures. For perspective, the company's five-year EPS growth rate is closer to 14%.

Nonetheless, IMI trades on a projected P/E of 14.2, which is cheaper than its peers in the Industrial Engineering sector, which are currently trading on an average P/E of around 18.

Unfortunately, IMI's P/E and tiny growth rate give a PEG ratio of around 14, which implies the share price is extremely overpriced for the near-term earnings growth the firm is expected to produce. Indeed, a PEG ratio of more than 2 is generally considered high.

Offering a 2.7% yield, IMI's dividend is around the same as the sector average. Furthermore, the dividend is just under three times covered, giving IMI plenty room for further payout growth.

Will IMI's strong growth continue?

As I say, recent EPS growth at IMI has been strong but I believe this growth-spurt is over. Indeed, IMI currently predicts that EPS will grow by just 1% this year.

IMI itself is focused on the manufacture and control of units involved in the movements of fluids. In particular, IMI is focused on indoor climate controls, drink dispensing systems oil pipe valves.

I can see that this range of niche products gives IMI's business a certain defensive nature against the current economic climate. Furthermore, the company's revenues are global with only 40% of the group's sales coming from the UK and US.

As I have already mentioned, IMI's organic growth is presently very slow. However, I believe IMI is seeking acquisitions to improve its low organic growth rate and gain access to other markets. Indeed, IMI still has plenty of room for acquisitions as net debt will only be around £160m at the end of this financial year, versus likely profits of more than £300m.

So overall, IMI is a strong company with plenty of potential. However, with the company's near-term growth slowing I believe now does not look to be a good time to buy IMI at 1,165p.

More FTSE opportunities

Although I feel now may not be the time to buy IMI, I am more positive on the FTSE shares highlighted in "8 Dividend Plays Held By Britain's Super Investor". This exclusive report reveals the favourite income stocks owned by Neil Woodford -- the City legend whose portfolios have thrashed the FTSE All-Share by 200% during the 15 years to October 2012.

The report, which explains the full investing logic behind Mr Woodford's dividend strategy and his preferred blue chips, is free to all private investors. Just click here for your copy. But do hurry, as the report is available for a limited time only.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.