Ashtead Group’s (LSE: AHT) proven to be a dream ticket for investors looking to make electrifying returns.
Over the past 10 years, the firm’s share price has risen at a compound annual growth rate of 39.9%, from less than 80p per share in 2009 to around £23 now. So an investor buying £1,000 worth of stock a decade ago has seen the value of their investment boom to a quite-brilliant £50,658!
But of course a supercharged stock price is only part of Ashtead’s great story. Thanks to its progressive dividend policy shareholders, who bought £1,000 worth of stock a decade ago, have also received total dividends worth around £2,266 in that time.
Many years of double-digit annual earnings growth have been the bedrock of Ashtead’s share price surge. And this is down to a number of factors.
Firstly, the business — which rents out a vast range of industrial equipment in North America and the UK — has considerable exposure to a strong US economy. The FTSE 100 company has long sourced the lion’s share of its sales from American customers and as of today, makes 85% of group revenues from its Sunbelt division in the States.
Secondly, Ashtead carries great strength thanks to its diversified operating model. The company services a broad range of sectors from construction and entertainment to emergency responders, and also boasts a highly-diversified fleet. It counts aerial work stations, forklifts, pumps and power generators among its catalogue of hardware.
The Stateside juggernaut
And finally, the brilliant bottom-line growth of recent years is also due to Ashtead’s efforts to expand its footprint across the US, achieved via a combination of heavy organic investment and an insatiable appetite for acquisitions (it made 24 bolt-on buys in the past year alone).
From operating fewer than 400 stores just a decade ago, the number has swelled to around 770. And this has in turn more than doubled its market share in the States to 9% from 4%, leaving all of its rivals (bar United Rentals) in its wake. And through its Project 2021 plan it aims to have 900 stores up and running in the next two years to generate more than $5bn worth of sales, a strategy it hopes will drive its share above that of its bitter rival.
It’s no surprise that City analysts expect these plans — combined with strong end markets in its core US territory — to underpin more sensational profits growth over the medium term. Earnings are expected to rise 18% and 11% in the fiscal years to April 2020 and 2021 respectively.
And these figures make it a bargain too, Ashtead dealing on a forward price-to-earnings (P/E) ratio of just 11.2 times. For a stock with such a terrific growth record, this makes it an irresistible buy, in my opinion, and one which I plan to buy myself in the days ahead.
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Royston Wild 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.