Investors are naturally anxious not to buy in to a story once it has run its course, but making the opposite mistake can be just as damaging.
Here are three companies that have done exceptionally well in recent years, reported strong results this week and that the managers are sticking by despite their rapid share price appreciation.
easyJet
easyJet has soared away from the FTSE over the last three years, with the share price appreciating 228.02 per cent. The FTSE All Share has risen just 33.38 per cent in this time.
Performance of stock vs index over 3yrs
Source: FE Analytics
Its success saw it elevated to the FTSE 100 index of the country’s biggest companies in March of this year, but it has continued to advance since then.
Final results out this week showed revenues were up 10.5 per cent for the year and pre-tax profits up 50.9 per cent. Passenger numbers grew 4 per cent while revenue per seat was up 7 per cent. The company has £1,237m cash on the balance sheet and net debt of just £156m.
The P/E ratio [price to earnings] is on 12.6 times, forecast to rise to 13 times – still below the 13.74 times of the FTSE 100.
John Baker, manager of JPM Europe Dynamic ex UK fund, says it is a company he is happy to hold despite its good recent run.
"With easyJet, we like that the stock is increasing market share, diversifying their passenger mix to increase the number of business travellers (currently 80 per cent of traffic is leisure-based) and finally the fact that ancillary revenues (speedy boarding and so on) continues to run ahead of expectations."
"easyJet is a good example of a stock that is benefiting from a consistent earnings upgrade cycle."
"Pricing remains strong as the major airlines are cutting capacity and smaller competitors have gone out of business."
"The whole industry is benefiting from a more rational approach to capacity. That’s to say airlines are cutting the frequency of and number of routes they offer. From peak, the network carriers (Alitalia, Lufthansa, and so on) have cut capacity by 7 per cent."
The company also announced a special dividend worth £175m on the back of its good results, amounting to 44.1p a share, subject to approval at the February annual meeting.
Justin Cooper, chief executive of shareholder solutions at Capita Asset Services, said: "easyJet are staking a claim on the UK’s dividend landscape, upping their payouts to shareholders more than nine times above the underlying growth of the wider market."
"The proposed £340m (gross) they will pay early next year in the form of both a special dividend and an ordinary one will easily propel them into the superleague of top-50 UK dividend payers."
"The proposed payout by the no-frills airline may only be a small slice of the UK dividend pie, but it shows that easyJet is proving one to keep an eye on for income investors."
"By way of comparison, International Airlines Group (which owns British Airways) still has no immediate plans to pay any dividends at all."
ITV
ITV is one of the turnaround stories of the past few years. The stock had lost over 80 per cent of its pre-crisis value at one stage, reaching its nadir in early 2009.
However, since then the share price has gone from strength to strength, and this year it nosed ahead of the FTSE for the first time since the crisis.
Performance of stock vs index over 7yrs
Source: FE Analytics
The share price has risen 792.12 per cent since its low point, according to FE data, while it has almost doubled over the past 12 months alone.
The company was hit in previous years by a slowdown in the advertising market, upon which it depends for much of its funding. However, in recent months and years the situation has been steadily improving.
This week the company reported that advertising revenues were up a further 1 per cent in the nine months to 30 September. The real growth came from its non-advertising revenues, however, which grew 11 per cent to £810m.
The success of ITV’s programming – particularly in overseas sales – has been one of the key drivers of its renaissance, and FE Alpha Manager Nigel Thomas recently told FE Trustnet that he expected the strong performance of these products to support the stock for some time to come.
"Recent research from Credit Suisse has reinforced the attraction of its content, as produced by ITV Studios," he said.
"Studios’ revenues from original commissions grew by 37 per cent between 2010-2012 – the content pipeline probably having been replenished after a long period of underperformance when studios’ revenues had fallen in the previous five years."
"Growth from distributing this content globally, where margins are estimated to be over 50 per cent, would also add to profitability."
"Credit Suisse believes that if some of this content turned into global hits, such as Downton Abbey or Mr Selfridge, then profitability would be significantly enhanced."
The P/E on the stock is forecast to be 17 times in December of this year.
Daily Mail & General Trust
Results out today show that the owner of the world’s most successful editorial website is continuing to increase revenues. Pre-tax profits were up 10 per cent over the last 12 months and earnings per share up 7 per cent.
This is despite falling revenues at the print newspapers in its stable: they fell 5 per cent at the daily and weekly paper in total.
Mail Online, however, saw revenues grow by a huge 48 per cent, from £28m to £41m. The group also saw strong results at Metro, whose digital advertising revenues grew 44 per cent.
The share price has appreciated 132.75 per cent since June last year, according to our data, well ahead of the 31.91 per cent of the market.
Performance of stock vs index over 3yrs
Source: FE Analytics
The stock is a major holding of FE Alpha Manager Nick Train in his Finsbury Growth and Income Trust.
Train says that the company is at the forefront of a technological revolution in online content which he is also backing through stocks such as Pearson, which provides educational content over the internet.
The P/E on the stock is 14.4 times and is forecast to rise to 15.6 times next year.
