Oxford Instruments’ (OXIG) shares have typically traded above 20 times earnings over the last 10 years – a premium rating, but plenty of investors have regretted not buying them over the years.It has delivered a total return upwards of 100% over that period and the company is becoming an even more high-quality business capable of generating yet more impressive returns.

Earnings forecasts have consistently been upgraded throughout the last 12 months and we see scope for that trend to continue, providing catalysts for further share price strength.

Oxford Instruments is one of those excellent UK industrial companies which flies under the radar but does something smart which enables it to generate strong margins. The company develops tools and technologies which facilitate nanotechnology research and industrial instrumentation. Put simply, its kit allows companies to measure, make and manipulate really small stuff.

Its end markets include life sciences, compound semiconductors, advanced materials and quantum technology. These chime nicely with themes like energy transition, healthcare technology and artificial intelligence which could dominate the next decade or more.

Oxford Instruments is in the middle of a restructuring to push its margins higher. This has included improving efficiency in the supply chain and becoming more focused on the wants and needs of its client base.

Evidence of the company’s robust profitability can be seen in the results to 31 March 2023. Operating margins were maintained at 18.1% despite wider inflationary pressures. The portents for future demand look good too with order growth up 20.9% in the period.

The company has three divisions. Materials & Characterisation specialises in products which enable the fabrication and characterisation of materials and devices down to the atomic scale – covering everything from research and development support to the production of devices.

Research & Discovery helps customers carrying out scientific research to do imaging and analytical measurements down to the molecular and atomic level. Service & Healthcare is the part of the business which provides the customer service and support underpinning its products.

China has been the fly in the ointment in recent updates from the company, having been hit by export licence rejections in the country. It has responded by shifting focus to less ‘politically sensitive’ areas like healthcare and materials rather than semiconductors and quantum technology.

Oxford Instruments generates plenty of cash and has a little more than £100 million of net cash on the balance sheet. This provides the company with the firepower to invest in the business as well as allowing it to augment organic growth with bolt-on acquisitions.

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