On 13 June, Ashtead (LSE: AHT) delivered its full-year results report and it contained a robust set of growth figures.
The international equipment rental company knocked the ball out of the park again in the trading year to 30 April 2023 with a 24% increase in revenue. And that’s the kind of form we’ve become used to from this amazing success story of a business.
A multi-bagging stock
Over the past two decades, the share price has doubled so many times that I’ve lost count. And according to stockbroker company AJ Bell, Ashtead has been the best-performing FTSE100 stock since joining the index in 2013.
In fact, over the past 20 years the company has given its shareholders a total return of around 22,000%, according to AJ Bell.
That means an investor who bunged £2,000 into the stock in 2003 would now have a position worth about £442,000 with reinvested dividends along the way. That’s the kind of investment performance many dream about but seldom achieve.
But who’d have thought it? Who would have believed that such super-performance would come from an equipment rental business? Some, perhaps. But not me.
Sadly, I haven’t been holding any of the shares. And one reason for that is the cyclicality in the sector. It’s one of the risks investors must embrace to hold Ashtead shares. And the share-price chart reveals some wide swings along the way for the stock.
However, although Ashtead’s business is sensitive to general economic cycles, it has also been expanding with vigour. And these days, more than 90% of profit comes from operations in the US with the rest from the UK and Canada.
The firm has come a long way from its beginnings in 1947 as a small equipment rental business in Ashtead, Surrey. And growth has been driven by a vibrant acquisition policy and strong organic advances.
The secret sauce
But there are lessons in the company’s success, at least for me. First, I reckon the business has demonstrated the power of focus. Indeed, Ashtead is still doing now essentially what it began doing in 1947 – equipment rental.
The company hasn’t diversified or become a sprawling conglomerate. Instead, it’s stuck to what it knows and has become a master of executing its operations and strategy.
Second, the business rides the fortunes of other industries without getting its hands dirty. Ashtead doesn’t get bogged down in the nitty gritty of construction projects and the whims and wants of end-customers. It simply provides the equipment that others need when they’re engaged in operations at the sharp end.
The way that it skims its profits from the activities of others is a powerful business model. And it reminds me of other sectors, such as agents of all kinds, banks, distributors and others.
Chief executive Brendan Horgan is upbeat about the outlook. He said the US operations under the Sunbelt brand have “clear momentum in strong end markets”. And the strength is being driven by an increasing number of mega projects and recent US legislative acts.
Therefore, Ashtead still looks like a good stock to hold in a diversified long-term portfolio, despite its phenomenal success so far. And I think it’s well worth investors’ further and deeper research now.
