Value can be a difficult thing to determine, especially when share prices are soaring.
Often investors will be either put off by a rising price – missing out on huge subsequent gains – or buy into the hype and subsequently end up disappointed. I wrote recently that Blackmores Limited (ASX: BKL) looked expensive at $100 – only for shares to hit a staggering $151.79 per share earlier this month.
With this paradox in mind, is there any value to be found in these high fliers?
Domino's Pizza Enterprises Ltd. (ASX: DMP) – last traded at $46.56, up 71% for the year
Who would have thought that the humble discount pizza business could go on to become a $4.1 billion dollar global phenomenon? Although shares opened at $46.56 this morning, Domino's hit a high of $48.90 earlier this week as investors bought the stock after a recent announcement last week regarding a French acquisition.
With the purchase, Domino's increases its footprint in France by approximately 25% and earnings per share are estimated to rise by 4%.
Despite the recent rise, Domino's shares look expensive as they trade on a trailing Price to Earnings (P/E) ratio of 65, more than 4x the ASX average. It is difficult to evaluate where the share price will go next, but I do not believe Domino's shares offer compelling value at today's prices.
Treasury Wine Estates Ltd (ASX: TWE) – last traded at $7.18, up 69% for the year
Treasury Wines hit a high of $7.52 earlier this week after management announced it was acquiring Diageo Plc's US and UK wine portfolio, which would result in a double-digit lift to earnings and significant cost savings over the next few years.
The acquisition appears to be a sound one, complementing Treasury's global wine strategy and existing business in the US. However, I feel that the company continues to look overvalued at today's prices; one analyst even has a price target as low as $3.80 on the stock.
It is difficult to evaluate where Treasury's share price is headed next, but the company does not appear to offer great value at today's prices.
Reject Shop Ltd (ASX: TRS) – last traded at $10.14, up 20% for the year
It is funny how looking at a share price during a discrete period of time can paint an entirely different picture of a company, depending on your time frame.
For example, Reject Shop shares are up 20% in the past twelve months, up 10% in the past eighteen months, and down 33% in the past two years. Shares also lost almost 50% between August 2014 and February 2015.
Of late, investors have piled back into the company after its most recent annual report indicated that the retailer had solved persistent problems with the business' strategy.
I also believe that buyers are speculating on the likelihood of further price rises, given that Reject Shop Ltd is poised for re-entry into the S&P/ASX 200 (INDEXASX: XJO) index, which would lead to strong interest as index-tracking funds are forced to buy back in.
Reject Shop has worked constructively on its issues, but like Blackmores is thinly traded and I believe shares could rise further in the next six months.
