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Is Brambles getting expensive?

Brambles (ASX: BXB) is a business  investment great Warren Buffett might describe as one with a ‘wide moat’. The term ‘moat’ is used when investors are analysing the competitive strengths of a business model, which in Brambles’ case includes a very hard to replicate global pallet pooling system.

It is always handy to keep a list of high quality companies you would like to buy at the right price. Brambles is potentially one for that list — Seek (ASX: SEK) and Ramsay Health Care (ASX: RHC) potentially are as well. While many would agree that Brambles ticks the high quality box, the question of price might be harder to meet at present.

Broker Goldman Sachs is forecasting earnings in financial year 2014 of 46.3 cents. With a last trading price of $9.31, this places the stock on a hefty forward price-to-earnings multiple of 20.1 times.

Given the global opportunities for growth, Brambles has a payout ratio lower than some more mature businesses, with the retained earnings used for reinvestment in growth initiatives. Having paid a dividend of 26 cents per share in the 2012 financial year, the stock is trading on a skinny 2.8% trailing dividend yield.

Foolish takeaway

With Brambles stock up a massive 50% in the past 12 months, compared with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), which has gained 16.8%, and trading on 20 times earnings, investors must surely be asking themselves the question “how much higher can the share price go?”

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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