Having asked myself whether I would buy 2021’s best-performing stock today, my answer to the question in the title is yes. That’s even before I have started analysing the stock in-depth.
I have to admit that I am a little surprised at how much this FTSE 100 stock has risen this year as it is up as much as 72%. It has always been a good stock, to be sure. I have been talking about how it would be great buy for me since 2019. And truth be told, I am a bit disappointed now at not having bought it, despite it being on my investing wishlist ever since. My disappointment has only grown of late as it has done particularly well. And I believe that there is good reason for it to continue performing in the future.
Ashtead races ahead
The stock I am talking about is Ashtead (LSE: AHT), the industrial equipment rental company. Even before it found itself at the top of the league table of best-performing FTSE 100 shares, it was already a strong stock to buy. And its financial performance only backs up its stock market performance. Moreover, quite unexpectedly, it is also a great dividend share to buy. Its dividend yield is a measly 0.8%. But this hides the fact that its dividends have grown by leaps and bounds over the past decade. As a result, if I had invested in the stock some 10 years ago, it would be the highest dividend-yielder for me, according to recent research by AJ Bell. That in itself is reason for me to buy the stock for the long term.
Infrastructure spurt could help
US President Biden’s Build Back Better bill could bolster the stock even more. It so happens that 80% of Ashtead’s business is derived from the US, which could get a significant boost if the bill does go through. There are some signs that it might not, though, but I think there is a case for me to buy the stock despite that. If the recovery picks up speed in 2022, the company could stand to benefit anyway. This is because it has significant exposure to construction, a cyclical industry that stands to gain during times of economic expansion.
The challenge
The stock’s main challenge for me is that it is relatively pricey compared to the FTSE 100 index. The index’s price-to-earnings (P/E) ratio is around 18 times, while Ashtead is almost 35 times. Now, for a high-performing company, I totally see why the P/E ratio is higher. But it may not look that attractive if its index peers that are currently struggling manage to improve their stock market performances. I mean, just consider the best performer for 2020, Ocado, which has underwhelmed significantly this year. Yet, we at the Motley Fool like to consider long-term performers, and I think on that count Ashtead could still come out ahead. I would still buy it.
