When looking for high-growth stocks to buy, the FTSE 100 isn’t usually the first place to start a search. As the UK’s flagship index, it’s home to some of the biggest businesses on the London Stock Exchange, most of whom have already reached maturity.
Yet, looking back over the last 14 years, Ashtead Group (LSE:AHT) apparently didn’t get that message. Shares of the tool hiring enterprise have catapulted 5,880% since January 2010, making it one of the best-performing UK stocks. To put this into perspective, a £10,000 initial investment then is now worth roughly £598,000!
While it’s unlikely for such explosive growth to repeat itself in the future, should Ashtead still be on investors’ radars as a top stock to buy? Or has the opportunity passed? Let’s investigate.
Ashtead continues to break records
Following the release of its latest interim results, the company pushed its top line by 16% to a new record high of $5.57bn. The bulk of this stemmed from its equipment rental businesses. And with underlying profit margins remaining relatively stable, EBITDA followed suit, expanding by 15% to $2.58bn.
That’s obviously an encouraging sign, especially considering the numerous headwinds management has had to contend with. Lower levels of emergency response incidents, along with the writers’ strikes in the US for the Film & TV industry, saw demand pull back.
Ultimately though, these appear to be short-term speed bumps rather than permanent roadblocks. And that’s an opinion seemingly shared by management, given it just raised shareholder dividends for the 17th consecutive year and continues to ramp up internal investments.
Yet, it seems not everyone was thrilled to see these results.
Risks and uncertainties
Ashtead has a reputation for underpromising and over-delivering. It’s a popular trait to have and not easy to pull off. Yet in November 2023, management made a troubling trading update that ultimately led to full-year guidance getting cut.
Revenue growth expectations were lowered from 13-16% to 11-13%. It’s not the biggest reduction. But what seems to have understandably spooked investors is the state of the bottom line. With interest rates going up, the group’s financing expenses have been rising. And over the three months leading to October 2023, financing costs leapt from $86.9m-$133.5m.
With leverage on the rise and growth expected to slow, it’s understandable for investors to be nervous. But at a forward price-to-earnings (P/E) ratio of 13.3 compared to its five-year average of 17, it makes me wonder whether a buying opportunity has emerged.
Personally, I feel that this might be the case. Management has a track record of disproving sceptics, and even with the increased level of leverage, the balance sheet appears to remain robust, in my eyes. That’s why I’m considering adding this business to my portfolio once I have more capital at hand.
