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What Does Ashtead Group plc's (LON:AHT) Share Price Indicate?

Simply Wall St

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Let's talk about the popular Ashtead Group plc (LON:AHT). The company's shares received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to £21.7 at one point, and dropping to the lows of £18.06. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Ashtead Group's current trading price of £19.66 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Ashtead Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Ashtead Group

What is Ashtead Group worth?

According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 12.84x is currently trading slightly below its industry peers’ ratio of 16.1x, which means if you buy Ashtead Group today, you’d be paying a fair price for it. And if you believe that Ashtead Group should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. In addition to this, it seems like Ashtead Group’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Ashtead Group generate?

LSE:AHT Past and Future Earnings, June 14th 2019

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Ashtead Group’s earnings over the next few years are expected to increase by 31%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? AHT’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at AHT? Will you have enough conviction to buy should the price fluctuate below the true value?

Are you a potential investor? If you’ve been keeping tabs on AHT, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for AHT, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Ashtead Group. You can find everything you need to know about Ashtead Group in the latest infographic research report. If you are no longer interested in Ashtead Group, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.