Renishaw plc is a terrific stock for cautious growth hunters

Precision engineering company Renishaw(LSE: RSW) has gone from strength to strength over the past five years. Since mid-2012 the shares have returned 166% excluding dividends as revenue has risen from £347m to £537m. And today the company reported its results for fiscal 2017, which shows further growth for the group.

Adjusted profit before tax for the period increased 25%, and adjusted earnings per share jumped 32%. Statutory profit before tax increased 90%. The company also increased its cash balance to £51.9m, compared to £21.3m last year, giving it a strong balance sheet with which to pursue growth opportunities.

Throughout the financial year, the company invested nearly £50m in organic growth opportunities and capital spending. This investment came out of its full-year cash flow from operations of £115m.

Built from the ground up

One of the reasons why it has performed so well over the years is that the company is still majority-owned by its two founders, who obviously want the business to perform as well as possible.

Chief executive and chairman David McMurtry and deputy chairman David Deer together own around half of the outstanding shares. Further, the business has a strong work culture, encouraging talent and treating its employees well. Management has always worked hard to keep jobs rather than cut them during cyclical downturns, hence the firm's strong balance sheet.

Bright outlook

Renishaw has all the hallmarks of a well-run business that works for all of its stakeholders and demand for the company's expertise should only grow in the years ahead.

You see, it is a leading producer of encoder, measurement and automation, calibration and coordinate measuring machine devices used in the construction of automated production systems. As demand for robotics solutions increases around the world, demand for these highly specialised measuring devices will almost certainly rise.

With its existing experience, strong work ethic and robust balance sheet, Renishaw is well placed to capitalise on this trend and extend the record of growth the group has accomplished over the past five years. Unfortunately, thanks to the company's recent growth and specialist nature, the shares trade at a forward P/E of 33, a high valuation but one that seems suitable for such a promising business.

Slow and steady

Fidessa Group(LSE: FDSA) is another specialist company that has grown steadily over the past five years. The group provides trading and investment information solutions for the financial services industry.
Over the past three years, pre-tax profit has grown by 26%, and earnings per share have risen by 20%.

City analysts are not expecting much in the way of growth in the business this year with an earnings per share fall of 1% projected. Next year, on the other hand, growth of 8% is expected, and analysts believe the shares will support a dividend yield of 4.1%.

Even though shares in Fidessa might seem expensive, trading at a forward P/E of 25.7, the highly specialised nature of this business means that it is unlikely to see a substantial decline in revenue or profitability.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Fidessa and Renishaw. 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.