Time To Sell Vodafone Group plc, Hargreaves Lansdown PLC And Associated British Foods plc?

Are Vodafone Group plc (LON: VOD), Hargreaves Lansdown PLC (LON: HL) and Associated British Foods plc (LON: ABF) seriously overvalued?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Deciding when to sell a share is always the toughest decision, and it can be especially hard choosing whether to part with one that has served you well.

If you’d bought Hargreaves Lansdown (LSE: HL) 12 months ago, for example, you’d be sitting on a 47% gain today at 1,361p. And if you’d managed to buy-in at the low of October 2014, you’d be up 61%. Dividends would have yielded less than 2%, but overall a cracking performance. So why would you sell?

Well, Hargreaves Lansdown is a very well managed investment company and its fundamental performance has been impressive, but I just don’t see how the shares deserve such a very high P/E rating of more than 35. After three great years of EPS growth to 2013, it then slowed to 9% in 2014, reversed to a 4% fall in 2015, and there’s a return to growth of 18% on the cards for the current year.

But a P/E of 35 is around two-and-a-half times the long-term FTSE average, and a share with a total EPS growth of 23% over three years does not, in my mind, deserve such a rating. Better than average, sure, but not that high. The price has actually dipped since the end of December, and I can see a leaner year ahead for Hargreaves Lansdown shareholders.

Overpriced telecoms?

Vodafone (LSE: VOD) is a big mystery to me. With its shares priced at 222.5p, we’re looking at a P/E based on March 2016 forecasts of 46! And I just don’t see what Vodafone is doing that commands such a lofty valuation. Vodafone has a number of telephone operations in various parts of the world, and it’s investing in the next generation of networks along with the rest of the world’s telecoms companies. But when I look at Vodafone I just see lots of assets and no joined-up company or joined-up strategy.

But maybe that’s what people find attractive. Are they expecting future merger or takeover attempts to get control of those assets?

It must be that, because I can’t see it being the mooted 11.5p dividend, yielding 5.3%. Not with earnings expected to come in at only 4.9p per share.

What price cheap clothes?

Associated British Foods (LSE: ABF) is perhaps not the kind of name you’d associated with a doubling in share price in three years and a P/E of 30, but that’s the forward valuation its 3,047p shares command right now. The company offers nice safe business and geographic diversity, but its star is its Primark subsidiary that has been providing some very good growth in recent years.

Yet since early December we’ve actually seen the share price lose 16%. So is the over-enthusiasm waning? I think it needs to, because I just don’t see the justification for such a high rating.

EPS fell by 2% in the year to September 2015 after a 6% rise the previous year, and there’s a further 2% drop on the cards for this year. That’s overall earnings growth of only 2.3% in three years. And with the dividend set to yield only 1%, a P/E of 30 boggles my mind.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »