The Ashtead (LSE: AHT) share price rose by an impressive 73% in 2021. This made it the best-performing FTSE 100 stock that year. The rally in the share price continued almost without pause, and finished not far off an all-time high by the end of December. I’m going to dig into the detail here to see why the company outperformed in 2021.
Share price momentum
Ashtead’s share price carried through strong momentum from 2020. In that year alone the stock had rallied over 42%. Finishing strongly, the company released its half-year results (the six months to 31 October) in December 2020. Indeed, Ashtead said its strong market outperformance during the pandemic had resulted in record free cash flow generation. As a result, the full-year figures to 30 April 2021 were also expected to be ahead of the company’s previous expectations. This pushed the share price up to near an all-time high.
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By March 2021, the share price was already up by an impressive 15%. In another strong update, the third-quarter results released that month were again ahead of expectations.
There was no end to strong trading for Ashtead throughout the whole of 2021. On release of the full-year results in June, its free cash flow generation was confirmed to be at a record £1,382m. This was considerably higher than the £792m achieved in 2020.
I think there were two main reasons for its business strength last year.
Firstly, Ashtead is an international equipment rental company. Its primary region is the US where it’s the second largest operator, working across 46 states from its 910 stores. Therefore, the construction industry is a key market for the company. This can be a rather cyclical sector.
However, the construction industry was given a major boost in 2021. Indeed, Congress passed President Biden’s Infrastructure Law last year. This aims to “rebuild America’s roads, bridges and rails,” and more generally invest in communities that have been left behind. Early numbers suggest it will also add up to 1.5m jobs per year for the next 10 years. At the very least, this should provide greater clarity for the construction industry in the US going forward, which is Ashtead’s key region.
I also regard the firm’s decisions over the pandemic as a reason for its outperformance. For example, the company prioritised protecting jobs and avoiding furlough during lockdowns. This meant it was always available for its customers. In doing so, it was able to gain meaningful market share, which it said was “a material ingredient in our success over the year”. This industry-leading performance led to record free cash flow generation.
A strong end to the year
Another positive update was given in its Q1 results for fiscal 2022 in September. Revenue grew 21% across the quarter. At this early stage, the board was confident enough to upgrade its expectations for the full year.
Momentum then continued into December on news that revenue for the first half grew 18%. Furthermore, earnings per share rose by an even bigger 38%, and the dividend was increased by 28%. The company said it was a record first-half performance with “clear momentum across the business”.
A number of upgrades across 2021, from positive sector catalysts, to industry-leading performance, helped to propel the Ashtead share price to all-time highs. The company should provide a further update in early March.