3 shares at 52-week highs – is it too late to buy?

Credit: James May

Good companies invariably go on to set new highs over time as continued performance drives the share price upwards. While new high prices can look elevated and intimidating, often they can be great value compared to where the company will be in five or ten years.

Equally often, companies reaching new heights can represent outrageous expectations of growth that are unlikely to be fulfilled – the trick is differentiating between the two. Here’s my take on three companies that reached new highs this week:

Scentre Group Ltd (ASX: SCG) – last traded at $4.44, up 19% for the year

Scentre Group continues to build on its flagship stores, whose premier location attracts more customers, which attract better retailers, which in turn attract more customers, which in turn allows Scentre to extract higher rental charges for its tenants. Ongoing strong same-store sales performance since listing have driven earnings and share prices higher, although investors should be cautious of paying too much for the business.

Scentre Group is targeting Net Operating Income (NOI) growth of 2%-2.5% per annum, and its portfolio is already 99.5% leased, meaning there is limited room for growth and room for downside if occupancy falls. The company has superb management and a big development portfolio as well, but Scentre is best suited for long-term, patient shareholders. I do not believe shares will replicate their past 12 months’ performance over the next 12 months.

Medical Developments International Ltd (ASX: MVP) – last traded at $4.40, up 120% for the year

Medical Developments caught the eye of the market earlier this year after its Penthrox treatment was given approval in several European markets, with more pending. Page 2 of the company’s half-yearly report shows current markets, pending markets, and future target markets for the company and there is enormous sales growth potential globally.

Much of this appears priced into the company already, although revenues should jump over the next 12 months as recent agreements lead to new sales. To my mind, the key report to watch will be the half-yearly results this time next year. With the growth potential on offer, today’s prices could prove very reasonable in five years’ time, although I will be waiting to see how sales ramp up before considering a purchase.

Brambles Limited (ASX:BXB) – last traded at $12.10, up 13% for the year

Brambles has had its share of ups and downs this year, with the company eventually soaring after its interim results earlier this week and an upgrade to full-year profit guidance. It seems investors really like Brambles’ focus on growing its return on capital invested, which is the effectiveness with which Brambles can invest in itself.

Brambles’ elevated price tag, around 20 times earnings, reflects market awareness of this fact and management’s intention to keep share numbers under control by minimising the effects of dividend reinvestment plans. Limiting shares on issue is an effective way to boost earnings per share in a growing business, and I expect Brambles’ share price to rise further over the next 12 months.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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