The FTSE 100 has put on just over 10% since the start of the year. A very decent rise. However, the index’s top three performing stocks — JD Sports Fashion (LSE: JD), London Stock Exchange (LSE: LSE) and Aveva (LSE: AVV) — have each gained in excess of 60%.
Before I look at why they’ve done so well, and whether I think they can continue to deliver for investors, the table below summarises some relevant data.
| Company | Sector | Current share price | Year to date performance | 5-year performance | Forecast P/E | Forecast dividend yield |
| JD Sports | Retail | 614p | 78.1% | 707.9% | 18.8x | 0.3% |
| LSE | Financial | 6,814p | 67.7% | 281.7% | 36.3x | 1.0% |
| Aveva | Software | 3,900p | 60.4% | 94.6% | 37.4x | 1.2% |
As you can see, the Footsie’s flying three operate in different sectors. So we’re looking at company-specific reasons for their high performances, rather than some industry driver floating all boats in one sector.
Increasing enthusiasm
A transformative merger of Aveva and Schneider Electric‘s industrial software business, which completed in March last year, created a global leader in engineering and industrial software. Investors have become increasingly enthusiastic about the prospects for the enlarged group.
Results in May showed a 12% uplift in annual revenue and a 27% increase in adjusted earnings per share (EPS). However, looking ahead, City analysts expect earnings growth to moderate to low teens. Aveva’s forecast P/E of 37.4 is far higher than its ever been in my memory, and I’m unconvinced the growth on offer warrants quite such a high multiple.
It strikes me that even a minor miss on earnings forecasts could see the shares hammered, and that Aveva may have to exceed forecasts to maintain investors’ enthusiasm. As such, I’m minded to avoid the stock at the current level.
Bold move
The LSE share price was already performing strongly this year, before jumping 15% last Monday. This came on the back of news it’s agreed to acquire global provider of financial data and infrastructure Refinitiv in an all-share transaction for a total enterprise value of $27bn.
The deal is a bold move by LSE, and a “compelling” one, according to management. It cites a host of impressive benefits, including “expected adjusted EPS accretion of over 30% in the first full year following completion, increasing in years two and three.” Shareholders are clearly up for it, although with various regulatory approvals also required, completion is not expected until the second half of 2020.
The current-year forecast P/E of 36.3 doesn’t reflect the potential future earnings power of the enlarged business. Still, I’m not sure I’d be buying the stock today, but if I owned it, I’d continue to hold.
Outstanding performer
JD Sports is the top performer, not only in the year to date, but also over the last five years, the latter providing shareholders with a terrific gain of more than 700%. A truly outstanding effort.
A leading retailer of sports, fashion and outdoor brands, its UK growth and strong efficiency metrics put many other retailers to shame. Furthermore, it’s expanding fast internationally, including in the most significant global market of all, following last year’s £396m acquisition of US athleisure chain Finish Line.
JD’s forecast P/E of 18.8 is far lower than Aveva’s and LSE’s, but higher than many retail peers. Deservedly so, in my opinion. Annual low teens EPS growth looks sustainable to me, and with management recently confirming encouraging progress in the US, I rate the stock a ‘buy’.
