When a stock has momentum on its side, it can be difficult to resist. These two have been racing away of the market over the last five years, but can they continue to deliver?
Like an arrow
Aviation services and distribution group Dart (LSE: DTG), the holding company behind consumer facing names such as short-haul airline Jet2.com and operator Jet2holidays, is up a whopping 401% over the past five years, and there has been no slowing down lately with the share price climbing 48% in the past 12 months.
That is remarkable growth, especially when you consider the problems affecting so many in the travel industry, with Thomas Cook going bust, and the likes of Ryanair and easyJet giving investors a bumpy ride.
The Dart share price jumped on Thursday after it published a positive set of interims, showing a 16% rise in revenues to £2.6bn, with operating profit up 3% to £365m.
Sunny outlook
The travel industry is risky, as fuel prices and foreign exchange rates are beyond individual company control, as are climate change and consumer sentiment. However, the £2.5bn FTSE 250-listed group continues to generate plenty of net cash, £512.5m in the first half, a rise of more than 15% year-on-year. Management increased the interim dividend by 7% and there should be scope for plenty of progression, as the current yield of just 0.9% covered eight times by earnings.
My major concern is that recent dramatic earnings growth (39% and 36% in 2018 and 2019 respectively) looks set to slow, with a drop of 5% expected this year. Although earnings are expected to return to growth in the year to 31 March 2021, this is forecast to be a more modest 6%.
Fortunately, and perhaps surprisingly, the stock trades on just 13.7 forward earnings – I expected a pricier valuation given recent dramatic growth rates. Dart is unlikely to soar another 400% in the next five years, that would lift its market to a mighty £12.5bn after all, but it may still continue to fly.
In rude health
Private healthcare provider NMC Health (LSE: NMC) is based in the UAE but listed on London’s FTSE 100, and has posted impressive growth of 341% over the past five years. However, the last 12 months have been poor, with the share price down almost 40%, amid concerns that its acquisition strategy has driven debt to dangerous levels and threatened the balance sheet.
Another concern is that NMC been slow to collect payments, taking almost a hundred days on average to bank customer bills. However, recent results showing 33% revenue growth and 30% bottom-line improvement have eased some worries.
On the table
In August, the stock soared 38% in a day, after two groups tabled competing bids to buy a £1.5bn stake in the company, one of them Chinese investment group Fosun. I am always wary of buying on speculation and with little subsequent news, and NMC Healthcare share price has trailed down.
The £5.16bn group, which operates a network of private hospitals in 19 Gulf countries, looks a little pricey trading at 20.2 times forward earnings. On the other hand, it has posted an impressive five consecutive years of double-digit earnings growth to 2018 (including 55% in 2016), and City analysts are forecasting another 13% this year and 28% next. It’s not often you see that these days.
Again, the yield is low, at 0.9%, but cover at 5.5 times earnings gives scope for progression. The recent share price decline could offer an interesting opportunity to buy into this long-term growth story.
