Recently, market experts have raised an alarm for few ASX-listed growth stocks to the likes of CSL, which saw a record high lately, and now look overpriced relative to their earnings outlook. The premise of the risks is based on any future earnings disappointments that may impact stock prices. Key growth stocks that have been highlighted to dominate the growth sector, and have accounted for a significant per cent of the S&P/ASX200 Index are being the cases for discussion here.
CSL Limited (ASX: CSL) is a health care stock and is currently trading at a market price of $186.23 (as at June 01, 2018) with a market cap of $84 billion. The annual dividend yield of 1.03% is not franked while the P/E ratio of the stock is quite high and is about 42x and the EPS is 4.452 AUD. For the half year 2018, revenue was up by 11% to $4,147 million. Earnings before income tax of $1,476 million were up 31% at constant currency with NPAT at $1,086 million with a rise of 31%. Interim dividend increased to $0.79 per share, up 23%. The group benefitted from the 13% rise in Immunoglobin sales, and now it seems that many of the positives have already been factored in the high price.
Cochlear Limited (ASX: COH) is another health care sector stock which is currently trading at a market price of $203.35 and has a market capitalization of $11.29 billion. The annual dividend yield is 1.43% which is fully franked. The P/E of the stock is about 50 and EPS is 3.882 AUD. The performance change of positive 8% is seen over the past 6 months with respect to the stock price. In FY17, Cochlear invested over A$150 million in Research and Development and Medical Affair. As identified in many recent studies, over 50% of people with severe-to-profound hearing loss (70-90 db) get poor results with hearing aid and this sets a good ground of requirement for COH.
Treasury Wine Estates Limited (ASX: TWE) is a consumer staple stock which is currently trading at a market price of $16.67 and has a market capitalization of $11.9 billion. The annual dividend yield of 1.7% is franked at 75%. The P/E of the stock is 38 and the EPS is 0.436 AUD. In FY17, TWE delivered EBITS of $455.1 million representing growth of 36.2% and the company completed the integration of Diageo Wine business and commenced resetting the acquired brands for growth. The group is paying shareholders dividends within its payout range of between 55-70% of Net profit after tax over the fiscal year.
(ASX: ALL) is a consumer discretionary stock which is trading at a current market price of $29.95, and has a market capitalization of $19.16 billion. The annual dividend yield for the stock is 1.3% while P/E of 38.070 and EPS of 0.788 AUD are noted. The stock has moved up by 35% in the past six months. Its H1 FY18 normalized profit after tax and before amortization of acquired intangibles of $361.5 million for the period represented a 32% increase compared to $273 million in the prior corresponding period and revenue increased by more than 33% driven by growth in Americas, in broadly flat markets. Normalized fully diluted earnings per share before amortization of acquired intangibles of 56.6c represents a 33% increase.
(ASX: RMD) is trading at a current market price of $13.57 and is a large cap health care stock with a market cap of $19.3 billion. The annual dividend yield for the stock is 0.94% with P/E of 35.870 and EPS of 0.377 AUD. The group’s 3Q FY18 revenue increased by 15% to $591.6 million, up 10% on a constant currency basis with GAAP diluted earnings per share of $0.76 and non-GAAP diluted earnings per share of $0.92. The stock has been doing well in terms of its return on equity and capital invested.
Looking at the above, the price to earnings levels for the stocks discussed are quite up from head to foot while they have already inched towards their respective 52-week high levels. When correlated with bond yields, any rise in yields will bring on challenges to the price to earnings levels while global exposure otherwise has helped these stocks in the earlier periods. However, these have started looking quite expensive and investors are eying for more resources stocks in the wake of current landscape and commodity prices. While it might be prudent to keep an eye on these stocks for any potential dip given the array of developments expected from some of these, at the moment investors might want to look at relatively cheap options.
Basic Normalised EPS (Source: Thomson Reuters)
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