The Motley Fool

Time To Sell Vodafone Group plc, Hargreaves Lansdown PLC And Associated British Foods plc?

Deciding when to sell a share is always the toughest decision, and it can be especially hard choosing whether to part with one that has served you well.

If you’d bought Hargreaves Lansdown (LSE: HL) 12 months ago, for example, you’d be sitting on a 47% gain today at 1,361p. And if you’d managed to buy-in at the low of October 2014, you’d be up 61%. Dividends would have yielded less than 2%, but overall a cracking performance. So why would you sell?

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Well, Hargreaves Lansdown is a very well managed investment company and its fundamental performance has been impressive, but I just don’t see how the shares deserve such a very high P/E rating of more than 35. After three great years of EPS growth to 2013, it then slowed to 9% in 2014, reversed to a 4% fall in 2015, and there’s a return to growth of 18% on the cards for the current year.

But a P/E of 35 is around two-and-a-half times the long-term FTSE average, and a share with a total EPS growth of 23% over three years does not, in my mind, deserve such a rating. Better than average, sure, but not that high. The price has actually dipped since the end of December, and I can see a leaner year ahead for Hargreaves Lansdown shareholders.

Overpriced telecoms?

Vodafone (LSE: VOD) is a big mystery to me. With its shares priced at 222.5p, we’re looking at a P/E based on March 2016 forecasts of 46! And I just don’t see what Vodafone is doing that commands such a lofty valuation. Vodafone has a number of telephone operations in various parts of the world, and it’s investing in the next generation of networks along with the rest of the world’s telecoms companies. But when I look at Vodafone I just see lots of assets and no joined-up company or joined-up strategy.

But maybe that’s what people find attractive. Are they expecting future merger or takeover attempts to get control of those assets?

It must be that, because I can’t see it being the mooted 11.5p dividend, yielding 5.3%. Not with earnings expected to come in at only 4.9p per share.

What price cheap clothes?

Associated British Foods (LSE: ABF) is perhaps not the kind of name you’d associated with a doubling in share price in three years and a P/E of 30, but that’s the forward valuation its 3,047p shares command right now. The company offers nice safe business and geographic diversity, but its star is its Primark subsidiary that has been providing some very good growth in recent years.

Yet since early December we’ve actually seen the share price lose 16%. So is the over-enthusiasm waning? I think it needs to, because I just don’t see the justification for such a high rating.

EPS fell by 2% in the year to September 2015 after a 6% rise the previous year, and there’s a further 2% drop on the cards for this year. That’s overall earnings growth of only 2.3% in three years. And with the dividend set to yield only 1%, a P/E of 30 boggles my mind.

It's hard to beat the idea of putting your money into top dividend-paying companies with progressive cash-handout policies, which have the potential to lift your income year after year. Our newest report, A Top Income Share From The Motley Fool, reveals a company that might just fit that bill.

It's a company with a market cap of around £500m, so it's not a high-risk tiddler, and dividends have been growing very strongly over the past few years.

Want to know more? Click here to get your completely free copy of the report delivered to your inbox today.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.