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Don't pay too much for growth

Keep an eye out for when companies with fast growing profits become less attractively valued.
Don't pay too much for growth
  • 22 FTSE All Share companies pass at least six of our large cap Garp tests
  • On Aim, 24 companies pass at least five of the small cap tests

Plumbing and heating product distributor Ferguson (FERG) still scores well on our growth at a reasonable price screen. It has improved since last time we ran the data, now passing 7/8 of the large cap criteria.  The improvement is that  it now satisfies the average two year earnings growth forecast test.

Royal Mail (RMG) has also enjoyed positive share price momentum in 2021 and it now passes 5/7 tests. It fails our five-year earnings per share growth rate test on account of being too good. This flag for earnings growth rate sustainability is reinforced by it  failing our test to have posted  year-on-year earnings growth for both of the past two half year periods. So although Royal Mail’s redemption in the eyes of investors has been one of the stories of 2021, there are grounds to be a little cautious in assessing how much further the share price could rise.

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