1 FTSE 100 stock to buy with £1,000

The FTSE 100 stock has doubled investors’ money in the past year. Can it do the same again?

| 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.

In the past year, construction stock Ashtead (LSE: AHT) has performed far better than most of its FTSE 100 peers. And it continues to race ahead as well. Its share price has risen far quicker than the index, which has remained virtually unchanged. In today’s trading alone, it is up 6% from yesterday.

Strong results for Ashtead

The latest increase follows a strong set of results for the first quarter of its current financial year, ending 31 July. Its revenues are up by 21% year-on-year and earnings per share have risen by a huge 71%. Trading conditions are vastly improved this year compared to the pandemic ridden 2020. 

Significantly, Ashtead’s debt ratio has improved quite a bit too. Its net debt to EBITDA, which is an acronym for earnings before interest, taxes, depreciation, and amortisation, is down to 1.3 times from 1.8 times in 2020. This is because of both a reduction in debt amount and an increase in EBITDA. A healthy debt ratio is beneficial at any time, but to me is particularly desirable during uncertain economic times like these.  

Positive outlook for the FTSE 100 stock

Ashtead is also positive on the rest of the year. It has raised its guidance for revenue growth from 6%-9% earlier to 13%-16% now. This is largely because of an improved outlook for the US market, which accounted for 87% of its revenue in the latest quarter. A considerable expected increase in infrastructure spending in the US also supports this outlook.

Pricey or not?

It is little wonder then that the construction equipment rental company’s share price continues to rise, even though it has already risen quite a bit. Over the past year, it has more than doubled. But the Ashtead share price increase is not a recent phenomenon. It has been a rewarding one to hold for long-term investors too. Over the past five years, on average, it has risen by 80% each year. Much of this growth has come in the last year. But even between 2016 and early 2020, which is before the market crash, its share price had doubled. 

However, the stock does look pricey, with a price-to-earnings (P/E) ratio ranging between 35 to 40 times, depends on which data source I consider. While it can be argued that the stock is priced higher because of better prospects than a number of other FTSE 100 stocks, it does not compare too well with its construction peer CRH either. CRH has a P/E of 27 times. But then, there is a likelihood that CRH is trading at a lower multiple because of a relatively small exposure to the US market. Only around 50% of CRH’s revenues come from there. This may explain why its share price increase has also been slower than that for Ashtead. 

What I’d do

All in all, I think at least for the next few years, it looks like a good buy for me, and has looked like one for a long time now. I would invest £1,000 in it on a dip, which would buy me 15-20 of its shares.

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.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

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 »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »