Stock market crashes are an opportune time to buy. High quality companies, such as Electrocomponents plc, are impacted by general market panic and sell-off, but the fundamentals of these companies stay the same. In other words, now is the time to buy strong, well-proven stocks at an attractive discount.
See 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. Electrocomponents was founded in 1928 and with the company's market cap sitting at UK£3.16b, it falls under the mid-cap group. Generally, large-cap stocks are well-resourced and well-established meaning that a bear market will cause it to rejig some short-term capital allocations, but stock market volatility is hardly detrimental to its financial health and business operations. Therefore large-cap stocks are a safe bet to buy more of when the wider market is going down and down.
Electrocomponents currently has UK£188.4m debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. Electrocomponents generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 21.08x, which is well-above the minimum requirement of 3x. Furthermore, its cash flows from operations copiously covers it debt by 67.4%, which is higher than the bare minimum requirement of 20%. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning ECM's financial strength will continue to let it thrive in a fickle market.
ECM’s annual earnings growth rate has been positive over the last five years, with an average rate of 12.6%, outperfoming the industry growth rate of 9.9%. It has also returned an ROE of 31.0% recently, above the industry return of 12.4%. This continuous market outperformance demonstrates a strong track record of delivering robust returns over many years, raising my confidence in Electrocomponents as a long-term hold.
Next Steps:
Whether you're convinced or not, the key takeaway here is that every stock gets hit in a bear market, but not every stock deserves the blow. When prices are dropping like flies, now is the time to do your research and buy at a discount. Electrocomponents tick the boxes in terms of its scale, financial health and proven track record, but there are a few other things I have yet to consider. Below I've compiled a list of factors for you to continue your reading before you buy:- 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.
- 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.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.