A stock market crash can be an excellent opportunity to acquire shares that may have previously looked expensive. I plan to follow this playbook in the event of a market slump over the next 12 months.
Indeed, I have put together a list of stocks I would like to buy if they suddenly fall in value. And there is one stock I would like to buy more than any other on the London market.
Potential acquisition for a stock market crash
I believe one of the most underappreciated companies on the London market is XP Power (LSE: XPP). This business designs, manufactures and sells electrical transformers. These are relatively unexciting components, but they perform an essential function.
Specifically, XP’s products convert power from the electricity grid into the appropriate form of energy the equipment requires to function.
Demand for these products has grown steadily over the past decade. Still, the outlook for the industry is changing rapidly as green energy takes over an increasing share of the electricity infrastructure.
Green energy uses a different form of power from traditional power. As a result, the demand for electricity transformers is growing. XP’s order book is already starting to reflect this expansion. The company ended its 2021 financial year with a record order book, providing excellent revenue visibility for 2022.
What’s more, the organisation’s revenues grew 10% on a constant currency basis last year. That is particularly impressive because the company benefited from a significant uplift in revenues in the pandemic due to rising sales of healthcare equipment.
Investing for growth
Management plans to capitalise on the pandemic windfall by investing in new manufacturing capacity for the year ahead. These plans suggest XP’s sales and profits could grow substantially as the business rises to meet the challenge of its record order backlog.
This potential is the reason why I would acquire its shares in the event of a stock market crash. XP has developed a niche in its market, and it looks as if its customers are fighting for the company’s capacity.
That said, the business does face some significant headwinds. These include rising cost inflation and supply change challenges. The company has already warned that both of these issues are having a substantial impact on its ability to fulfil orders. I will be keeping an eye on these risks as we advance.
Still, with a growing order backlog, I think the enterprise can navigate these issues. At the time of writing, the stock supports a dividend yield of 1.6% and is trading at a forward price-to-earnings (P/E) ratio of 22.6.
Considering the company’s potential, I do not think this ratio is that expensive. If it falls further in a stock market crash, I think this stock could be a no-brainer buy for my portfolio, considering the factors outlined above.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended XP Power. 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.
