Fast growing companies are always tempting. We want a winner and hope that a stock can keep up its blistering pace. Yet even when a company is attractive and you like it as a business, you still have to decide if buying stock right now makes business sense for you.
A high-flying stock could fall suddenly from disappointed expectations with no damage to the actual business. Set your targets, wait for price weakness and you can save yourself some money and grief.
Here are three stocks that have made significant gains in FY 2014 and the market is still chasing them.
1) Sirtex Medical Limited (ASX: SRX) is the developer of a specialised liver cancer treatment that could become a "first line" treatment that patients receive right along with chemotherapy and radiation. The company feels confident current clinical studies due out next year will show its product should be a first line treatment and have started preparing for a dramatic rise in demand and orders.
The stock's price-earnings ratio is a very high 47, yet consensus forecast puts earnings growth around 44% annually over the next two years. Buying now before the results are out is probably a bigger gamble than investors should take. Waiting until the announcement is more prudent.
2) Domino's Pizza Enterprises Ltd (ASX: DMP) grew earnings 28% in FY 2014, mostly on the back of the profits from its 75% stake in Domino's Pizza Japan. It plans to greatly expand the store network there in the next five years, as well as continuing to grow in Australia. That indicates we should look forward to further earnings growth.
But it comes at a price. Its PE ratio is 44, so the market expects a lot more. I would say to hold on this one because after the big earnings addition in Japan, the ongoing business growth may not be as fantastic. Investors could cool off on it and better entry prices materialise.
3) Perpetual Limited (ASX: PPT), the fund manager, also had a scorching year from financial markets hitting new highs. The popularity of the business is driving client funds under management up sharply – an 18% increase to $29.8 billion. Rising markets and fund management fees are expanding company earnings.
Its 18 PE is in the middle of its past average PE range and earnings are forecast to possibly grow 13% annually over the next years. It does pay a healthy 4.4% dividend yield. Perpetual is better priced than the other two stocks above, however upcoming growth could be dependent on the Australian equity market extending without a major sell-off.
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