The InvoCare Limited (ASX: IVC) share price is trading at $16.33 at the time of writing, which is its highest level since Christmas 2017 and looks to be marching toward its all-time high of $17.75. If you were fortunate enough to pick up shares in December last year, when they hit $10.22, you would be looking at a gain of almost 60% since then.
A refresher on InvoCare
InvoCare is the largest funeral services provider in Australia with a significant presence in New Zealand and Singapore as well. The company operates 290 funerals 'locations' and 16 cemeteries and crematoria across these countries. I like InvoCare as a company because it has managed to leverage its strong brands like White Lady Funerals, Simplicity Funerals and Whitestone Funerals (New Zealand) into significant market dominance in what is otherwise a highly fragmented industry. InvoCare turns over around $400 million a year and has a current market cap of $1.9 billion.
What's happened with the price?
As discussed above, InvoCare's share price has been on a massive tear, independent of the company actually making more money. In my opinion, this can be (somewhat) explained by one factor – low interest rates. Similar to infrastructure companies like Transurban Group (ASX: TCL), InvoCare is now viewed as somewhat of a 'bond proxy' due to its highly defensive revenue stream. As demand for funeral services is almost completely detached from economic conditions, InvoCare's earnings reside behind a formidable firewall. Falling rates have increased the demand for steady yields outside the bond market, and investors have flocked into InvoCare to fill this gap.
How long will I wait?
With the InvoCare share price at this level, the stock is sitting on a price-to earnings (P/E) ratio of 43.75. This seems very high (and it is) but consider other 'bond proxies' have similar or higher P/E ratios (Transurban is on 63 at current prices). I would love to add InvoCare shares to my portfolio as it is a stock you could comfortably own for decades, but I would be waiting for a far lower price level to make an entry. When the P/E is around 15, I might pick up the phone.
