Buy Electrocomponents plc (LON:ECM) When Everyone Panics

When stocks are plummeting in price, it's hard to start buying into all the uncertainty. But a disciplined long term investor knows there's no better time to buy than right now. And I'm not talking about buying into speculative, high-risk stocks. I'm talking about the well-proven, robust track record Electrocomponents plc. Why? Size. Financial health. Proven performance.

View our latest analysis for Electrocomponents

Electrocomponents plc, together with its subsidiaries, distributes various electronics and industrial products in Northern Europe, Southern Europe, Central Europe, the Asia Pacific, and the Americas. Established in 1928, and run by CEO Lindsley Ruth, the company currently employs 5.94k people and with the company's market cap sitting at UK£2.6b, it falls under the mid-cap group. Typically, large companies are well-established and highly resourced, meaning that stock market volatility may impact some short-term strategic decisions but unlikely to matter in the long run. Therefore, large-cap stocks are a safe bet to buy more of when the general market is selling off.

With UK£270m debt on its books, Electrocomponents has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. Electrocomponents generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 19.41x, which is well-above the minimum requirement of 3x. Moreover, its operating cash flows amply covers its total debt by 54%, above the safe minimum of 20%. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means ECM is financially robust in the face of a volatile market.

ECM’s profit growth over the previous five years has been positive, with an average annual rate of 20%, beating the industry growth rate of 17%. It has also returned an ROE of 30% recently, above the industry return of 10%. Characteristics I value in a long term investment are proven in Electrocomponents, and I can continue to sleep easy at night with the stock as part of my portfolio.

Next Steps:

Based on these three factors, ECM makes for a strong long-term investment in the face of a fickle stock market. If you’re a risk averse investor, lining your portfolio with proven companies you’re willing to buy more and more of as the price falls, is a good strategy to build your wealth over the long run. This is the beginning of your research, but before you decide to buy ECM, I highly urge you to understand more about the company, in particular, in these following areas:

1. Future Outlook: What are well-informed industry analysts predicting for ECM’s future growth? Take a look at our free research report of analyst consensus for ECM’s outlook.
2. Valuation: What is ECM worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ECM is currently mispriced by the market.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.