From a historical perspective, Ashtead (LSE: AHT) is without a doubt one of the FTSE 100’s best growth stocks.
Over the last 10 years, its share price has increased about 600%. Over the last 20 years, it has risen about 30,000%!
Is this Footsie star worth considering for a portfolio today? I think so.
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Because right now, it’s cheap.
Growth at a reasonable price
Ashtead is one of the world’s largest construction equipment rental companies.
Headquartered here in the UK, it generates the bulk of its revenues in the US today.
When it comes to revenue growth, the company has a super track record.
For example, between FY2014 and FY2023, revenue climbed from $2.6bn to $9.7bn (a compound annual growth rate of about 16%).
This growth, or the prospects for future growth, don’t seem to be factored into the valuation, however.
At present, Ashtead shares have a forward-looking price-to-earnings (P/E) ratio of just 12.8 using the earnings forecast for the financial year ending 30 April 2025.
That’s quite a low valuation.
Bright prospects
Now, construction is a cyclical industry (meaning it has its ups and downs).
And recently, the company lowered its revenue guidance slightly to reflect a few short-term issues (like the Hollywood strikes).
However, looking ahead, Ashtead has bright prospects, to my mind.
Over the next few years, we are likely to see a huge amount of spending on construction in the US.
That’s because the country is currently undergoing a massive ‘onshoring’ movement to eliminate supply chain vulnerabilities.
From new semiconductor plants to new electric vehicle (EV) battery plants, there will be a lot of industrial development.
This should provide powerful tailwinds for the company.
Ashtead has mentioned this supportive backdrop in recent updates.
“Our end markets in North America remain robust, supported in the US by an increasing number of mega projects and recent legislative acts. This, combined with the substantial structural growth opportunities that we see for the business, enables the Board to look to the future with confidence,” said the company in its last trading update.
Given the backdrop, analysts expect Ashtead’s revenues and earnings to continue rising in the years ahead.
Currently, they expect 13% revenue growth for the year ending 30 April 2024 and about 10% growth the year after.
As for earnings per share, they expect a 4% rise this financial year and then a 16% increase the next.
Attractive risk/reward skew
Now, as I noted earlier, construction is a cyclical industry.
So, a deterioration in the economic environment is a risk here.
Overall though, I like the risk/reward setup at the current valuation.
With billions of dollars of infrastructure funding set to be released in the US next year, Ashtead should benefit.
It’s worth noting that analysts at Morgan Stanley have a price target of 6,720p for the stock.
That’s about 40% above the current share price.
