Benjamin Graham, mentor of Warren Buffett, once famously said that 'in the short run, the market is a voting machine but in the long run, it is a weighing machine.'
Nowhere is this more obvious than during reporting season, when shareholders vote with their feet on the latest set of company results. Results have driven each of the following three companies to new heights, but can they sustain their current levels or will these prices soon be little more than a happy memory for shareholders?
Here's what I think:
Domino's (ASX: DMP) – last traded at $60.80, up 77% for the year
Who would have thought the humble pizzeria could deliver returns to shareholders of 900% over the past five years before dividends? Domino's latest results lit a(nother) fire under its share price, pushing the company to its highest point of all time – a price of $61.99 earlier this week. Domino's guided for strong ongoing same-store sales growth of ~10% in most of its markets, as well as 460-500 new outlets in Financial Year 2016.
Even taking into account its rapid growth, Domino's shares trade on an eye-watering valuation. I expect the company will be able to maintain good same-store sales growth in its foreign markets for some time as well as growing by acquisition – but the trouble is this is factored into the share price already. There's no margin of safety for investors at today's prices. I wouldn't be surprised to see Domino's shares head higher in the near term, but I also wouldn't feel comfortable buying shares today.
Burson Group Ltd (ASX: BAP) – last traded at $4.64, up 75% for the year
Like Domino's above, and IDP Education, below, Burson shares soared this week after a solid half-year results release. The auto parts supplier has been able to push through price increases for its customers, and thanks to recent acquisitions the company also expects to see significant synergies beginning in Financial Year 2017. This, combined with other initiatives is expected to result in strong ongoing performance for the foreseeable future. Indeed, Burson guided for Net Profit to be between $41.5m-$43m in this financial year, up from $23.1m last year.
With this kind of performance and the likelihood of more, I expect to see Burson shares head higher in the next 12 months or so.
IDP Education Pty Ltd (ASX: IEL) – last traded at $4.16, up 28% for the year
IDP Education shares have been on a tear recently after the company's interim results, which saw the company grow revenues by 24.5% and profit by 19.4% as IDP saw strong demand for its English courses worldwide. Australasian demand fell, but Asian revenues grew substantially while 'Rest of World' also posted solid growth.
IDP's business is likely to experience long-term tailwinds thanks to the establishment of its schools in dozens of nations with lower levels of English literacy. Investors still have a way to go towards familiarising themselves with the company, which has only been listed for a few months, but I wouldn't be surprised to see IDP shares head higher in the near term.
