The US presidential election is tomorrow (5 November), and many investors are speculating over how the stock market might be affected. Will it go up or down?
As a long-term investor, however, I’m less bothered about short-term market swings. My primary goal is to build wealth for retirement by capitalising on long-term growth opportunities.
Regardless of who wins the race, I’d feel comfortable scooping up shares of Ashtead Group (LSE: AHT) to hold for the next few years. Here’s why.
Very attractive returns
Ashtead proves that you don’t have to be a sexy AI-fuelled tech stock to drive jaw-dropping returns. Operating primarily under the Sunbelt Rentals brand, the firm rents out construction and industrial equipment (diggers, forklifts, excavators, scaffolding, traffic cones and more). Hardly spine-tingling stuff.
Yet the stock is up around 7,200% in 15 years, and 145% over the past five years. Neither figure includes a rapidly rising dividend. This makes it one of the UK’s best-performing shares over the last 20 years.
Acquisition master
How has Ashtead achieved this? Well, the firm has a long history of successfully making strategic acquisitions to expand its market presence and service offerings, achieving economies of scale along the way. This makes it a classic example of a serial acquirer.
Today, it’s the second-largest rental equipment provider in North America (behind United Rentals). It has an 11% market share in the US and 9% in Canada. Meanwhile, it leads the UK market, with a 10% share.
In the key US market, most of the industry remains divided among smaller players, with 62% controlled by companies outside the 10 largest firms. This indicates that the market is still highly fragmented and ripe for further consolidation.
On top of this, there’s an ongoing trend toward leasing over ownership, meaning this is a growing industry.
Still progressing
In its Q1 2024/25 results, Ashtead said it had invested $855m to add a total of 33 new locations in North America, as well carrying out two bolt-on acquisitions for $53m.
Revenue increased 2% year on year to $2.75bn, with rental revenue up 7%. EBITDA rose 5% to $1.28bn.
For the full year, Ashtead expects rental revenue growth of 5%-8%. So the company is making progress, despite weaker construction spend due to higher interest rates.
US mega-projects
In 2022, the US passed the $52bn CHIPS and Science Act, designed to boost semiconductor manufacturing, and the $891bn Inflation Reduction Act, which is focused on increasing clean energy production and other sustainability initiatives.
If he wins though, Trump has promised to rescind any unspent funds under the Inflation Reduction Act (which he’s called the “Green New Scam”). So this is a potential risk to growth.
Nevertheless, I’d still expect Trump to commit to onshoring manufacturing activity, particularly chip making, as well as infrastructure spending. And due to the AI boom, construction of more data centres seems certain.
On the Q1 earnings call, Ashtead’s management put the overall amount of mega-project value at $850bn over 600 projects. So this remains a very significant growth opportunity in the years ahead, regardless of the election outcome.
The stock’s forward price-to-earnings ratio is 16.8, just below that of rival United Rentals (17). Given this reasonable valuation, I’d snap up Ashtead shares for the long haul, if I hadn’t already done so.
