FTSE 100 incumbent Ashtead Group (LSE:AHT) released its first-quarter results for 2021 today. Based on these, should I buy shares for my portfolio or avoid them?
Construction boom
Ashtead Group is an international equipment rental firm with a presence in the UK, US, and Canada. It rents a range of construction and industrial equipment to its 800,000 customers. In construction, renting is often more cost effective rather than buying equipment.
There is data that shows UK construction, especially in the residential market, has grown well over the past 12 months. This has been helped by government subsidies to home buyers. Furthermore, the construction boom has continued as the world economy has stabilised since the pandemic and market crash. Ashtead is one of a few FTSE 100 firms to benefit from this boom.
As I write, shares in Ashtead are trading for 6,134p. This time last year, shares were trading for 2,949p, which means its share price has increased over 100% in 12 months. The announcement of Q1 results has seen the Ashtead share price spike close to 5% today alone, with a few hours of trading left in the day.
Impressive performance
Ashtead’s Q1 results confirms that construction is booming and, in my opinion, it shows no signs of slowing down just yet. The FTSE 100 incumbent reported revenue grew by 21% compared to Q1 last year. Rental revenue grew by 22% compared to the same period last year. As a result of this, operating profit increased by 53%. Furthermore, earnings per share shot up by 71%. Overall, the board decided to upgrade full-year guidance, which is impressive after one good quarter.
From an operational perspective, Ashtead reported it invested $551m of capital in the business. Of this, $123m was spent on acquisitions. I am a fan of acquisitions. I believe they represent a clear growth plan and ambition to enhance a business’ offering.
Ashtead also has a favourable track record. I am aware that past performance is not a guarantee of the future. Nevertheless, I use it as gauge when reviewing stocks to buy for my portfolio. The pandemic affected FY2020 results which covered the period March 2020 to March 2021. The three years prior to this, it reported growth in revenue, gross profit, and total equity year-on-year.
FTSE 100 stocks have risks
Ashtead has two main issues I see. It is heavily dependent on US revenue. The US has ambitious construction growth plans from an infrastructure perspective but so far, things are progressing much slower than envisaged. If these plans were to fall behind, it could affect Ashtead’s finances.
Next, the Covid-19 pandemic has affected Ashtead in the past. If new variants and restrictions were to arise, it could slow progress once more.
Despite these risks, I am a fan of Ashtead and believe it is one of the better FTSE 100 stocks to buy now for my portfolio. It continues to grow organically and through acquisitions and I believe it could offer me a good return.
