In December, I picked my top British stock to buy in 2023. This wasn’t a straightforward task, as I remember there were several really attractive UK investment opportunities at the time.
Anyway, in the end, I plumped for equipment rental firm Ashtead Group (LSE: AHT), and consequently bought the stock myself. And, so far, that’s proven to be quite a decent pick, as the share price has risen by 21% this year.
Here, I’m going to look at whether I’d still buy this FTSE 100 stock today.
Huge market opportunity
To recap, Ashtead is a plant-hire company trading under the Sunbelt Rentals name. It operates in the UK and North America, where it hires out a vast array of equipment, including diggers, cranes, scaffolding, tools, and on-site accommodation.
Though it’s the largest equipment rental company in the UK, around 85% of its revenue is derived from the US. Indeed, it’s the second-largest company of its kind across the pond, with 1,094 rental stores in 49 states.
And it is in the US where its massive market opportunity lies, as significant federal infrastructure spending is now underway. There is the Inflation Reduction Act and the CHIPS and Science Act, the latter of which is intended to re-shore semiconductor manufacturing and research from overseas.
This is expected to boost overall demand for rental equipment.
Economic cycle
Now, while these mega-projects should benefit Ashtead over time, construction is a deeply cyclical industry. And the US could still enter a recession next year, though a recent survey of economists now puts that risk at 50% or less.
Either way, recessions are relatively short-lived, usually lasting months. Periods of expansion, however, normally last for years.
This means Ashtead will spend considerably more time benefiting from US economic expansion than it will navigating economic downturns.
I’d also note that the company continues to broaden its end markets, including the rental of specialist film production equipment. This should make its revenue less cyclical in future.
Would I still buy the stock?
Despite the stock’s 21% gain in 2023, I would still buy it today.
In fact, that is exactly what I did in early July, as I added to my holding at a price of 5,300p.
I did this after the firm reported a record full-year performance in June. Group revenue grew by 24% year on year to $9.67bn, while adjusted pre-tax profit rose by 25% to $2.27bn. Its US business continued to drive most of this growth.
I should also note that JP Morgan recently increased its share price target to 6,700p from 6,500p. If that price is reached, which of course isn’t guaranteed, it would represent a 17% increase from today’s price of 5,756p.
Summing up, Ashtead appears poised to benefit from the massive industrial spending in the US. It is highly cash generative and has a strong pipeline of acquisition targets to drive future growth.
At 18 times earnings, it’s still relatively cheap for a high-quality growth stock. And management just kicked off a fresh $500m share buyback programme, adding to the £1bn it has already spent buying back shares since 2021. The company also has a progressive dividend policy.
All in all, I think Ashtead remains one of the best UK stocks to buy today.
