Shares in equipment rental firm Ashtead (LSE: AHT) have soared by over 8% today after the company released an upbeat set of half-year results. On an underlying basis, sales increased by 18% versus the first half of last year, with pre-tax profits surging by 21% versus the same period.
A key reason for this is the strength of the US economy, with 86% of Ashtead’s revenue being derived from the US versus 83% a year ago. Looking ahead, this increased focus on a fast-growing US market is likely to continue to push the company’s profitability northwards.
In fact, Ashtead’s expectations for the full-year have been increased after today’s update, with the company stating that it expects to beat previous guidance. Its management team appears to be very confident in the outlook for the business, with capital expenditure being increased to £1.1bn as it seeks to invest for future growth. And with Ashtead increasing dividends per share by 33%, it’s quickly becoming a relatively appealing income play.
Will it stay that way? It looks likely. Ashtead is forecast to increase its bottom line by 24% in the current year and by a further 18% next year. Despite this, it trades on a price-to-earnings (P/E) ratio of just 14.5, which indicates that 2016 could see excellent capital gains for the company’s investors.
Long term performers
Also having the potential to rise sharply in 2016 is Barclays (LSE: BARC). It has endured a relatively troubled period, with a change in management as well as uncertainty regarding regulatory action and possible fines. While the latter could continue over the medium term and act as a dampener on the bank’s share price, the appointment of a new CEO means that the former may cease to act as a brake on its share price performance.
Clearly Barclays is performing well with regards to its profitability. It delivered a double-digit rise in earnings last year and is expected to repeat this in both the current year and the next. Encouragingly, it trades on a P/E ratio of just 10.3 and this indicates that there’s vast upward rerating potential. The market may be rather downbeat on the wider financial services sector at the moment. But for long term value and growth investors, Barclays remains a top pick. It could come good in 2016 on the back of a refreshed strategy and reduced operational challenges.
Meanwhile Burberry (LSE: BRBY) has also experienced a challenging recent past with a slowdown in China hurting its sales performance. Although it has profited from increasing exposure to China, the flip side is that it’s becoming increasingly reliant on the world’s second largest economy for sales growth. While this could hurt the firm in 2016, in the long run it’s likely to be a major advantage for Burberry with over 300m Chinese due to become middle income earners in the next 15 years.
Burberry’s share price could come under further pressure as the Chinese economy continues to slow. And with its shares trading on a P/E ratio of 15.3, they could be subject to a further derating in the near term. However, the longer term strength of Burberry’s brand, the potential for rapid consumer sales growth in China and its wide geographical spread mean that Burberry holds great appeal at the present time.
