The Ashtead Group (LSE: AHT) was one of the biggest FTSE 100 gainers yesterday after it released its results. This added to its share price strength. At £33 in December, AHT’s share price is at £30-plus levels for the second month running now. Going by monthly averages, this month’s numbers also put the share price at an all-time high. There’s more. The stock is up almost 80% from the plunge it saw during the stock market crash earlier in the year.
So why am I interested in buying the stock now? Simply because I think it’s in for even better times in 2021. There are three reasons for this.
#1. Return to growth for the FTSe 100 stock
2020 has been a bad year for much of the economy, and that goes for construction too. According to date from the Office of National Statistics, the official source of national income data, the segment is still 7.3% lower than it was in the pre-coronavirus period.
But things are improving. In September, it grew by 2.9%. With overall economic growth expected to bounce back in 2021, the construction industry’s fortunes are set to improve too. With support to real estate pushing UK’s house prices to all-time highs, short-term support could be felt because of this too.
#2. Diversified support
I’m also hopeful for Ashtead’s growth in 2021 because of its strong presence in the US. Its US subsidiary, Sunbelt, accounts for a substantial portion of AHT’s total revenues. According to Goldman Sachs’ latest update, the US economy will be back to pre-pandemic levels by the second quarter of 2021.
The bank, which was bullish on the US economy in the event of a ‘blue sweep’ has pulled back its first quarter forecasts for 2021 after the recent rise in Covid-19 cases in the country. But, in the scheme of things, it’s still poised for growth. Importantly a £1trn fiscal stimulus package is expected, which can be particularly good for construction in so far as it’s directed towards infrastructure creation.
#3. Further performance improvement
I’m further encouraged to think that there’s good news ahead for AHT because of its own outlook. It now expects full-year results to be ahead of previous expectations. I can’t think of too many companies that are this confident in the current environment.
Its results so far show resilience too. While its financials have been impacted by Covid-19, the hit from the pandemic wasn’t as bad as in the last result. Also, it remains comfortably profitable. It’s also a dividend paying stock. The dividend yield isn’t anything to write home about, but it definitely doesn’t hurt.
I was bullish on Ashtead even before the results came out. In fact, it was my top stock pick for December in anticipation that it would turn a good set of results. Now that we have confirmation, I’d buy this FTSE 100 stock with even greater confidence.
