These FTSE 100 stocks have never been higher. But are they now too expensive?

The FTSE 100 continues to have an uncharacteristically great year. As I type, we’re looking at a gain of 17% — a return on par with the tech-filled S&P 500 across the pond. At this rate, we might even break through the 10,000p price boundary before the end of 2025!

But it’s not just the index that’s setting records. Many of its members have never been higher in price.

Among those who tick that box are:

Let’s zoom in one of these.

Quality operator

Halma is a stock that reeks of quality. The health and safety tech supplier has been a brilliant wealth-compounder over the years, benefiting from growth drivers such as increased regulation, ageing populations, and digitisation.

One also can’t talk about this company without mentioning the passive income it’s thrown off to shareholders. Yes, a yield of just 0.72% at the current time doesn’t sound like much to get excited about. But the point is that Halma has grown its annual dividend by 5% or more every year…for well over four decades.

There aren’t many businesses out there than can boast that sort of consistency and demonstrates how a build-by-acquisition strategy (Halma is actually a collection of a huge number of smaller businesses) can work wonders.

Analysts are forecasting another dividend rise in this financial year.

Now for the ‘bad’ news…

The problem is that all of those listed above now trade at steep valuations. Any investor considering Halma would need to pay the equivalent of 34 times expected earnings. Value-add distribution company Diploma is on 31 times earnings. Mining, infrastructure, and energy equipment supplier Weir Group has a price-to-earnings (P/E) ratio of 24.

The long-term average in the FTSE 100 is in the mid-teens.

Sure, some companies are worth paying a premium to own. But the higher they go, the greater the risk that these companies’ share prices become detached from their fundamentals. And that might be a problem if current sentiment around AI begins to reverse, leading to a swift and brutal bear market (or worse).

In times of trouble, many investors sell what they can to raise cash, regardless of quality. As a rough rule of thumb, expensive growth stocks tend to fare poorly. As evidence of this, it should be noted that all three shares mentioned here began to struggle as inflation soared in the aftermath of Covid-19. Halma’s share price fell by over 40% in two years.

As an aside, it’s interesting to note that there hasn’t been much director buying in recent times, at least relative to the amount of selling.

Where will Halma’s share price go now?

Of course, there’s nothing to say that the £14bn cap’s share price won’t continue rising. In its most recent update (September), the company said that it had made “strong progress” in the first half of its financial year, despite “a challenging economic and geopolitical environment“. Low double-digit percentage revenue growth is now expected. This is an improvement on the previously-anticipated upper-single-digit percentage growth.

As a candidate for a long-term-focused portfolio, I continue to think that Halma warrants consideration. After rising more than 30% in 2025 so far, however, I wonder if those already invested may need to moderate their expectations for further gains in the near term.