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Why I’d buy shares in this fast-growing FTSE 100 company

The U.S. economy is driving forward, which is great news for investors despite the growing concerns that the bull run will at some point come to an end. One FTSE 100 company benefitting directly more than most from growth in the world’s largest economy is the construction equipment rental company, Ashtead Group (LSE: AHT).

The company makes 88% of its revenues in North America where it owns Sunbelt Rentals. The margins of 50.6% indicate the company is sustainable and competing well. Smaller operations in Canada and the UK diversify risk for the company and its shareholders.

Recent results from Ashtead show growth and momentum are still very much being delivered. Ashtead is building on its past success and digging an even bigger moat around its market position. The most recent quarterly results showed underlying growth of 19%, leading the company to forecast that the full-year results will exceed current expectations.

Stellar growth

Since the recession a decade ago, Ashtead has rewarded shareholders generously. The share price has risen over 140% in the last three years and has performed well in 2018 so far.

For a FTSE 100 business, Ashtead is still an exciting growth company. Unlike bigger FTSE 100 peers, Ashtead is still all about growth – meaning shareholders can make significant gains.

Boosting the growth is Ashtead’s market share in both the U.S. and the UK. It is the second largest and the largest company respectively in the countries. Acquisitions help protect Ashtead’s market share in what is a highly fragmented market.

Alongside acquisitions the company also invests heavily in new equipment, which is vital when economic conditions are favourable, as they currently are. During the three months to July, Ashtead spent £465m on new equipment – up from £377m a year ago, indicating management’s confidence in the future growth of the company.

Future for the company

Ashtead looks to be a compelling growth stock for investors to own. The main risk would be linked to the growth of the U.S. economy. If there was a violent downturn or recession in the world’s largest economy and Ashtead’s biggest market then this cyclical business would be hit hard, as it was during the last recession.

With the company having survived and subsequently thrived after the last recession, I strongly believe the company has now been made much more resilient than before. This would reduce the risk even if economic conditions and the trading environment for Ashtead did worsen – and in any case, a downturn could be many years away. As such, it’s worth keeping an eye on but not worrying about at this time.

Based on what the company is doing now in terms of continuing to invest in growth, build market share and reward investors through share buybacks and a rising dividend, I’d have to say I think Ashtead looks like a major opportunity at the current time for investors. A price-to-earnings ratio of 18 doesn’t put me off when there’s so much future potential growth.

To me, now would be the time to add Ashtead into a portfolio. For a FTSE 100 stock, it has massive future potential. Management look set to continue rewarding their shareholders for some time to come.

Buy-And-Hold Investing

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Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.