Shares for the future: reconsidering two rejects

Today, I’m updating the stories of two companies I’ve previously scored but no longer feel able to. They are, in some ways, promising, so we should keep tabs on them.

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RWS: top of the ‘too hard’ pile

Since I last scored translation company RWS Holdings (LSE:RWS), it has appointed a new chief executive and reorganised itself into three new divisions. From 2026, it will segment its results three ways: Generate, Transform and Protect.

Generate comprises a newish business devoted to training AI models, and content management software systems that RWS has acquired over the years. Transform is the bulk of RWS’ translation and localisation business. Protect, is its oldest speciality - patent translation and services.

RWS’ pitch used to be quite straightforward. It grew by acquisition into one of the largest language service providers employing a network of linguists to translate and localise content in specialist niches, requiring legal, regulatory and scientific knowledge. People with subject and language skills were its competitive advantage. They used technology, in the form of machine translation, to be more efficient.

Today RWS pitches itself as “AI first”. It has a mountain of specialist translations to train AI models with, whether they are in-house or customers’ models. Accuracy and safety is maintained by keeping humans “in the loop”, verifying and adding emotional and cultural nuance.

Despite earning 71% less adjusted after-tax operating profit in the year to September 2025, RWS achieved 12% return on capital, which is above the 8-10% I consider viable. But the company’s profit is so heavily adjusted, and it has written off so much capital, I don’t have much confidence in the figure.

Cash flow was more impressive than adjusted profit and better than cash flow in 2024, but less than half peak cash flow in 2022. The company is making money, but I do not have a view on how much it might earn in future, because the business is changing so much.

I don’t know whether rising costs and a slow decline of revenue growth are the result of the investment required to establish the new business model or a permanent feature of it. Neither do I know if RWS’ AI solutions will win in the market.

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While it has acquired translation software and has long used neural machine translation, the famous conversational abilities of Large Language Models (LLM) means the market is adopting them for aspects of translation.

RWS partners with larger and smaller LLM providers. Its emphasis on “private models” trained on its own data tightly integrated with RWS software suggests it is at least trying to differentiate its offering.

The company gave indicative revenue figures for each new division in its 2025 annual report. Transform was by far the largest, contributing 67% of revenue. Generate contributed 19% and Protect contributed 14%.

It is the smaller two divisions that the company anticipates will grow in 2026, while it stabilises Transform over the medium term. Overall, RWS expects revenue and profit to return to modest growth in 2026.

Transform is shrinking partly because more of its output is generated by software sold as a service. This replaces revenue up front with recurring subscriptions. I think it is also shrinking because human translation commands a higher price than machine translation.

I’m not even sure how dramatic the strategic shift is. RWS has been inconsistent in how it reports the size of its “linguistic network”. In previous years, it has disclosed the number of in-house and freelance linguists.

In 2022, there were more than 2,000 in-house and over 30,000 freelancers. In 2024, there were just under 2,000 in-house, and over 40,000 freelancers. In 2025, RWS didn’t provide a breakdown but counted 43,000 in its linguistic network.

RWS may be AI first, but it looks like there are a lot of people still in the loop. Its reputation with large multinationals should also be an asset in a time when our trust in content is being challenged.

Victrex: investing hard, going backwards

Jakob Siggurdsson resigned as chief executive of Victrex (LSE:VCT) on the first day of this year. His entire eight-year tenure has delayed gratification.

Siggurdsson inherited a newish strategy, to grow the market for PEEK, a tough polymer used in components across industries where performance and lightness is important.

ICI, once Victrex’s parent, invented PEEK and Victrex is the dominant producer, hence the requirement to find new uses for the material. With manufacturing partners and on its own, Victrex has invented new PEEK parts for planes, medical implants and oil pipelines for example.

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For a decade, Victrex has waved the more than £50 million potential annual revenue from each of these “mega-programmes” under investors’ noses, but none of them have come close. In 2025, five surviving mega-programmes brought in £9.1 million, over £1 million less than in 2024. They contributed about 3% of total revenue.

The strategy is still called Polymer and Parts, but it hasn’t delivered growth in revenue, and the company is much less profitable than it was in its heyday.

In the year to September 2025, Victrex earned 7% return on capital, below my quality threshold and far below the returns in the mid-twenties it achieved a decade and more ago.

James Routh, the new chief executive, may have a decent first year. The company is cutting costs to boost profitability, and Victrex’s new Chinese factory is operational but working below capacity.

This development ends a phase of heavy investment, but Victrex expects the factory to lose money and use up cash in 2026 while it scales up. Along with the mega-programmes, becoming a local supplier to the increasingly inwardly focused Chinese market is in current management’s view, Victrex’s best hope of turning things around.

I want to see what new management has to say about that.

30 Shares for the future

Here is the ranked list of Decision Engine shares. I review the scores at least once a year, soon after each company has published its annual report. The price scores are calculated using the share price prior to publication.

Generally, I consider shares that score more than 5 out of 10 to be worthy of long-term investment in sizes determined by the ideal holding size (ihs%).

Click on a share's score to see a breakdown (scores may have changed due to movements in share price). Key: qual is the share’s score out of 9 for the three quality factors (capabilities, risks, and strategy), price is the price score from -3 to +1, and ih% is the suggested ideal holding size as a percentage of the total value of a diversified portfolio.

Richard Beddard is a freelance contributor and not a direct employee of interactive investor.  

Richard owns many shares in the Decision Engine. He weights his portfolio so it owns bigger holdings in the higher-scoring shares.

For more on the Decision Engine and Share Sleuth, please see Richard’s explainer.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard