Rental equipment supplier Ashtead Group (LSE:AHT) has seen its share price rocket an impressive 619% during the past decade. A combination of solid capital gains — combined with a commitment to steady dividend growth — made it the best-performing of any UK share during the 2010s.
The FTSE 100 company’s return on investment grew at a whopping compound annual growth rate of 43% between 2010 and 2019, according to Refinitiv. And it got the current decade off to a flyer when its shares hit a record peak around £64.50 in late 2021.
Ashtead’s share price has settled back since then and was last at £54.62. I think 2024 could be the year it springs higher again, and I’m thinking of increasing my own stake in the business. Here’s why.
Rate cuts coming
Ashtead’s fortunes are highly sensitive to conditions in the broader economy. It rents out hardware to a variety of industries, though it still makes most of its profits from the highly cyclical construction sector.
Business has been slower of late, and more recently Ashtead took the rare step of reducing its earnings forecasts. But the Federal Reserve is expected to start cutting rates in the new year, which should in turn help Ashtead pick up fresh momentum.
In fact, given the pace at which inflation is falling in the firm’s core US marketplace, I think economy-boosting rate cuts could come in sooner (and harder) than the market is currently expecting, providing Ashtead’s bottom line with a surprising boost.
Acquisition thirst
The continuation of Ashtead’s highly successful acquisition strategy could also deliver impressive, share-price-boosting results in the months ahead.
Bolt-on buys to increase its market share has underpinned its excellent earnings history of the past decade. And it made another 16 acquisitions at a cost of $705m during April-October to help keep this record going.
Pleasingly, Ashtead has a solid balance sheet it can use to continue its M&A strategy too and increase its US market share from last year’s 13%.
A top value stock to buy?
Market competition is fierce across its territories. And this will remain a threat in the new year. Yet on balance, I think the rental giant is a top buy for the new year. And especially at current prices.
Firstly, the FTSE 100 firm price-to-earnings (P/E) ratio of 17.5 times for this financial year (to April 2024). Not only do I think this represents solid value based on its strong growth record, City predictions expect earnings will rebound 16% next year to see the multiple topple to just 15 times.
On top of this, the 15 analysts offering 12-month price targets have calculated a median price target of £60.31 per share. Thats a 10.4% premium on current levels, according to data from the Financial Times.
Ashtead has a proud history of delivering forecast-beating financial results. I expect this trend to resume in 2024 which, in turn, could give its share price a massive lift.
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Royston Wild has positions in Ashtead Group Plc. 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.
