I think Dechra Pharmaceuticals (LSE: DPH) could prove to be a very lucrative FTSE 100 stock for me to own this decade. People are spending more money on their pets than ever and this bodes well for animal medicine developers like this one.
Latest financials from Pets at Home this week illustrate how strongly spending on animal care is growing. The FTSE 250 firm claimed it was on course for “a record year of sales and profit growth” for the period to March. This particular spending phenomenon is a global one too.
It’s why researchers at Grand View Research predict the global veterinary medicine market will rise to be worth $30.8bn by 2028. That’s up a whopping $20bn from what it was valued at last year. This is good news for drugs manufacturers like Dechra, of course.
Expensive but exceptional
Dechra has a long track record of unbroken annual earnings growth. It’s a history that’s been helped by a long line of acquisitions to create a top-quality portfolio of animal drugs and boost its global footprint. City analysts are expecting this positive bottom-line trend to continue too. They expect profits to expand 5% and 9% in the financial years to June 2022 and 2023 respectively.
A word of warning however. At current prices, Dechra trades on a heavy forward price-to-earnings (P/E) ratio of 35 times. Such a high valuation could cause a sharp share price reversal if news flow surrounding the company starts to look a little squiffy. In the case of Dechra this could happen, for example, if it encounters trouble with developing a particular potentially-money-spinning drug.
It’s my opinion though that Dechra’s long-standing record of constant profits growth makes it worthy of a handsome rating. And, perhaps more importantly, so does its robust position in a fast-growing market and the company’s lasting appetite for profits-bolstering acquisitions.
Another FTSE 100 share to buy
That said, I also love the thought of loading up on bargains. And that means Ashtead Group (LSE: AHT) remains high on my list. Like Dechra, a robust appetite for acquisitions helped profits at this FTSE 100 share rise consistently in recent years. And while Covid-19 has caused some temporary turbulence, the rental equipment business is expected to storm back straight away.
City analysts think earnings at Ashtead will rise 41% and 18% in the years to April 2022 and 2023 respectively. This leaves the business trading on a rock-bottom price-to-earnings growth (PEG) ratio of 0.5.
Acquisition activity in the past decade has also made Ashtead an industry giant in the US. The company has the balance sheet strength to continue splashing out on acquisition targets as well continuing to deliver monster shareholder returns.
I’d buy more Ashtead stock for my portfolio even though worsening economic conditions in the US could hit demand for its services. In recent days, the IMF has slashed its GDP growth forecasts for the US to 4% for 2022, from 5.2%. But I think the potential rewards here far outweigh the near-term risks.
Royston Wild owns Ashtead Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
