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At all-time highs, is FTSE 100 stock Ferguson a good buy for me?

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When I last wrote about the utility products’ provider Ferguson (LSE: FERG) in December last year, it was in the context of its dividend yield. But much has changed since. 

For starters, stock market optimism, which was still quite new for investors then, has continued. As a result, share prices across the FTSE 100 spectrum have risen and their dividend yields are no longer as attractive. Like in the case of Ferguson, which looks weak to me from an income standpoint now. While other companies have brought dividends back and the average yield has risen, Ferguson’s yield now stands at a paltry 2%. 

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The Ferguson share price keeps rising

But there is a good reason for this. There has been an impressive increase in the FTSE 100 stock’s price in the meantime. This means that investors need to invest more capital for the same amount of dividend. But what it lacks in dividend yield, it makes up for in growth now. 

In the past year, Ferguson’s share price has risen by over 56%. This is pretty impressive. The Ferguson share price is now trading at around all-time highs, which it touched a few days ago. But the big question in my mind now is whether its share price can reach even higher highs. 

Robust financials

As always, I first considered its financials, which look good. For the quarter ended 30 April, its revenue grew by 24.5% from the same quarter last year. Its profits showed an even stronger growth of over 60% according to the two numbers it shared. The company says that the performance is ahead of its expectations. 

This is a sharp bounce back from the already decent performance it clocked for the year ending 31 July 2020 despite the pandemic. Its revenues were down marginally by 0.9%. Its profits were impacted by 4.8%, but compared to many other FTSE 100 stocks, this is still a neat result. And the latest improvements give me confidence that it can continue to perform. 

Assured demand

As a provider of plumbing and heating products, Ferguson is assured of steady demand even during uncertain times. This, to me, is its big advantage, and explains its resilient performance from last year. Since much of its demand comes from the US market, I think it can perform quite well this year as the economy is expected to do well. Its showrooms are also open now for customers, and account for some 15% of its revenues. 

Inflation worries

There are some risks, though. If property markets’ growth slows down, demand for Ferguson’s products can be impacted too. With rising prices of raw materials, this is possible. Also, as inflation rises, affordability falls so consumers can reprioritise expenses. I need my regular groceries, but I can choose to postpone updating my bathroom fittings if it is spilling out of my budget, for instance. 

But with the verdict on inflation still out there, I think Ferguson is a stock I like. It is on my list of shares to buy. 

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Manika Premsingh 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.

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