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The Diploma (LSE:DPLM) share price is surging this morning (20 May) and investors don’t have to look hard to see why. The FTSE 100 firm’s latest update is very impressive – for a number of reasons.
Some of these are more obvious than others. But there’s no way around the fact the latest results show a welcome return to form for one of the UK’s strongest growth stocks.
The results
In the six months leading up to the end of March, Diploma’s sales grew 14%, which is a lot. And around half of this came from the firm’s existing businesses, rather than through acquisitions.
This was well ahead of the company’s expectations after the first quarter. And management has increased guidance for the full year to 8% (from 6%) as a result.
There were also very positive signs further down the income statement. Diploma’s earnings per share came in at 80.2p on an adjusted basis, constituting 23% growth.
Management also reported a strong pipeline of opportunities in terms of future acquisitions. Given all this, it’s not a big surprise to see the stock surging higher as a result.
Analysis
Diploma’s latest results are impressive in isolation. But in the context of the company’s recent performance, I think they’re even more outstanding.
The company’s organic revenue growth in the first half of 2025 is almost double the 5% per year assumed in the company’s model. And there’s another reason this is important.
A lot of Diploma’s growth strategy is driven by acquisitions. Investors, though, can view this as risky, given the inherent danger of overpaying for a business that ultimately doesn’t pan out as expected.
Strong organic revenue growth helps offset this. And the news that the firm’s two biggest recent acquisitions – Windy City Wire and Peerless Fasteners – are performing well is also very encouraging.
Risks
Diploma’s latest results are extremely strong and I think the company as a whole is very impressive. But it’s not like the business is entirely risk-free.
One of the things worth keeping an eye on is the firm’s leadership. Jonny Thomson took over as CEO in 2019 and has taken the FTSE 100 firm to new heights.
While some of this might be attributable to Diploma’s entrepreneurial culture, it’s worth noting the previous CEO’s tenure wasn’t so successful. That indicates to me there’s an element of key-man risk.
This is something to keep an eye on for investors. At a price-to-earnings (P/E) ratio of above 30, the current share price reflects unusually strong performance for a long time to come.
Should I buy the stock?
Diploma’s share price is – understandably – responding positively to management’s increased guidance for the year. But that makes it hard to think there’s an obvious opportunity right now.
Warren Buffett says that the stock market is a device for transferring wealth from the impatient to the patient. And I think that’s the key thing to remember at the moment.
Diploma shares rarely trade at a low P/E ratio, but expectations are especially high at the moment. As a result, I’m going to keep watching and look for a better opportunity.
