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FTSE 250 scientific technology products powerhouse Oxford Instruments (LSE: OXIG) is down 16% from its 8 November one-year traded high.
Part of this price drop followed the election of Donald Trump as US President in that month. In his first term in office and during his second-term campaign he advocated tariffs on trading partners. Once elected, he imposed these on multiple countries, including the UK.
Another part came after the 10 June announcement that the firm was going to sell NanoScience – its quantum business.
That said, I do not believe that the US protectionist policy will continue much past the end of Trump’s presidency. And even if it does, Oxford Instruments should be able to find ways of mitigating this risk. Indeed, its 13 June annual 2025 results stated: “We are well placed to mitigate any direct impact from tariffs.”
As for the sale of NanoScience, the firm underlines that it will enable it to focus on its three structural growth markets. These are materials analysis, semiconductors, and healthcare and life science. It adds that this should boost its adjusted operating profit margin by 1.9%.
I think it additionally worth noting that NanoScience only represented a small part of the company’s nanotechnology interests. Specifically, it only handled the special units used to supercool quantum computers.
So how does the business look now?
There are still risks in the firm, of course, as with all businesses. I think the main one is any major fault in any of its key products that could be expensive to rectify. It could also seriously damage the firm’s reputation.
That said, consensus analysts’ forecasts are that Oxford Instruments’ earnings will grow by a very strong 26.1% a year to end 2027. And it is precisely this growth that drives any firm’s stock price higher over time.
The latest results (annual 2025) saw revenue exceed £500m for the first time – up 6.4% year on year. Adjusted operating profit jumped 10.8% to £82.2m, while adjusted earnings per share rose 3.1% to 112.4p. Revenue is the total income made by a firm, while profits are what remains after expenses are deducted.
The firm also saw 11% revenue growth to commercial customers away from academia over the period. This is part of its strategy to boost earnings growth.
How undervalued is the stock?
Experience as a senior investment bank trader taught me that price and value are not the same thing. The former is whatever investors will pay for an asset at any given time. Value is what the asset is truly worth, based on underlying fundamentals.
Over the past 35+ years in financial markets, I have also found that asset prices tend to converge to their true value over time.
My preferred method for ascertaining any stock’s value is the discounted cash flow method. This identifies where any share should trade, based on cash flow forecasts for the underlying business.
In Oxford Instruments’ case, the DCF shows its shares are 39% undervalued at their current £18.82 price.
So their fair value is £30.85.
I already own shares in the firm but will buy more soon based on its strong earnings growth prospects and its deep discount to fair value.
