When share prices set new 52-week highs, the companies must be doing something right, yes?
Look at JD Sports Fashion (LSE: JD), whose shares have fallen back a little from their recent 12-month high due to the latest FTSE 100 panic. They’re still up 107% over the period, mind, as the company looks set to bounce back to strength after a tough 2014/15. For the year just ended January 2016 the City’s analysts are expecting a 28% EPS rise — and those results should be with us on 14 April.
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That would put JD Sport on a P/E of 21, however, dropping only to around 19.5 if the following year’s 8% EPS rise comes off. A strong Christmas trading period, with a 10.6% rise in like-for-like sales, did improve sentiment towards the company considerably, and I can easily see a couple of years of impressive trading coming up, as the economy continues to improve and consumer spending remains reasonably robust.
But right now, especially with recovering dividends still yielding less than 1%, I see JD shares are too expensive — especially when there are so many better bargains out there.
Online fashion retail is a risky business, but that didn’t stop Boohoo.com (LSE: BOO) hitting a 52-week high of 44.75p on 5 February. In the past few days the price has dropped back to 40.8p, but that has still given shareholders a 71% rise in 12 months.
And there could be more to come, after a January trading update told us the firm expects the full year to beat previous expectations. The year ends in February 2016, and the pundits have a 43% rise in EPS penciled in, with a further 27% for the following year. But we’re looking at high P/E ratios of 37, dropping only as far as 29 based on 2017 forecasts.
An early growth start can command such high valuations successfully, and an investment in Boohoo right now might do well. But I’m minded of ASOS (LSE: ASC) and the spectacular roller-coaster of boom and bust that its shares have been riding for some years. I’m keeping away.
I’ve kept my best for last, and it’s housebuilder Bellway (LSE: BWY), which has just released a first-half trading update ahead of interim results due on 22 March. The firm reported an 11.6% rise in housing completions, with a 17% boost to its average selling price to £257,000. The company’s forward order book looks strong and it’s buying up plenty of land at favourable prices.
It’s no surprise, then, that the share price has been hovering around a 52-week high in 2016, although it’s dipped along with the rest of the market in the February sell-off. Still, the update gave the price a 3.5% boost to 2,570p on the day, and that brings in a 33% gain in 12 months.
With a forward P/E for the full year of only 9.4 and a 3.4% dividend yield on the cards, Bellway is looking cheap to me.