One of the handful of out-and-out growth shares that I kept after I turned 50 is the FTSE 100’s Ashtead Group (LSE: AHT). My focus has been on maximising my dividend returns from high-yield stocks so I can further reduce my working commitments.

In 2024, the firm paid a total dividend of $1.05 (80p). This generates a 1.5% return on the current share price of £52.35, so high-yielding it is not.

It is not a very sexy business either, so it tends to get overlooked by many smaller investors. All it does is rent out construction and industrial equipment to other firms.

However, for a long time it has done so to great effect. It is the largest equipment rental company in the UK and the second largest in the US. It also has a market share of 9% in Canada.

Biden’s big boost to business in 2022

Ashtead was given a huge boost in 2022 from two pieces of US legislation that came into view that June. They were both enacted that August.

One was the $52bn CHIPS and Science Act aimed at dramatically increasing the US’s manufacturing of semiconductors. The other was the $891bn Inflation Reduction Act geared to raising the country’s production of clean energy, among other things.

In both cases, it remains cheaper and faster for a business to rent certain necessary equipment than to buy it. Given this, Ashtead’s share price leapt 84% from end-June 2022 to its 12-month traded high of £61.79 on 16 May.

How do the latest results look?

Ashtead’s major risk now in my view is any change in these two key US policies under a new president in November.

However, Q1 2024/25 results released on 3 September saw EBITDA rise 5% year on year to $1.3bn. Total rental revenue jumped 7%.

Operating profit dropped by 2% to $688m from $703m. However, over the same period, the firm invested $855m adding 33 new locations to its US and Canadian operations.

For the year ahead, Ashtead Group’s guidance is for rental revenue growth of 5%-8%.

Consensus analysts’ estimates are for earnings per share to increase 13.2% by the end of its fiscal year 2026/27. Return on equity is forecast to be 23% by that time.

Are the shares undervalued?

Ashtead Group currently trades on the key price-to-earnings (P/E) ratio measurement at 19.1. Rather than being undervalued, this looks overvalued against the average 13 P/E of its peer group.

This comprises H&E Equipment Services at 9.7, Herc Holdings at 11.1, and United Rentals at 17.6.

The same overvaluation applies on the price-to-book (P/B) comparison, with Ashtead Group at 4.1 against a competitor average of 3.7. And at 1.8 compared to a peer average of 1.8, the firm also looks overvalued on the price-to-sales (P/S) measure.

That said, of the 18 analysts who cover the stock, the current average one-year price target is £62.39. This implies a potential gain of 20%.

Nonetheless, I will not buy any stock that is not significantly undervalued on at least one of the three key measurements I use – P/E, P/B, or P/S.

Instead, I will keep the shares I already have and review them after the next quarter’s results on 10 December.