These FTSE 100 growth stocks are getting too expensive

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FTSE 100 favourites Burberry(LSE: BRBY) and Rolls-Royce(LSE: RR) have both seen their shares perform well in recent months, up 60% and 50% respectively since this time last year. Both companies have renewed their strategies in recent times, leading to an uplift in investor sentiment. But could it now be time to book some profits, or can we expect further gains?

Year of transition

Last month Burberry released its preliminary results for the year ended 31 March, in what was a year of transition in a fast-growing luxury market. The upmarket fashion retailer reported adjusted pre-tax profits of £462m, down 21% on an underlying basis on the previous year, with revenues of £2.8bn, 2% lower on an underlying basis.

However, the group did manage to deliver cost savings of £20m during 2016/17, with plans to increase this to around £50m during the course of the current fiscal year, and to at least £100m by FY 2019. Retail sales, which account for 77% of total revenue, were up 3% on an underlying basis, with contributions from 209 mainline stores, 200 department store concessions, digital commerce, and 60 outlets.

Big let-down

But the wholesale and licensing channels, which account for the remaining 33% of revenue, were the big let-down, slipping by 14% and 48% respectively on an underlying basis. Management proposed a final dividend of 28.4p per share, bringing the full-year payout to 38.9p, a 5% increase on the previous year.

Analysts are forecasting fairly modest earnings growth of 3% for the current year, followed by a much healthier 12% improvement next year, leaving the shares trading on a premium P/E rating of 19 for 2018/19. I think long-term attractions remain, but after this year's strong share price rally it may be better to wait for the next big pull-back before buying.

Stamping out corruption

Meanwhile aircraft engine-maker Rolls-Royce announced at the start of this month that it had won an order to supply low-emission gas engines for Norwegian ferry operator, Torghatten Nord. The blue-chip engineering giant will supply the Scandinavian ferry operator with 15 gas engines to power five Liquefied Petroleum Gas (LPG) ferries operating between Bergen and Stord in the south-west of the country.

Meanwhile, the company continues to press ahead with its transformation initiatives, while making good progress with its cost cutting and efficiency programmes. Furthermore, Donald Trump's push for increased military spending should also help to boost the firm's coffers over the next few years. Management has also been working hard to stamp out corruption and improve business conduct after historical bribery allegations put a stain on the firm's reputation earlier this year.

This is all great news for Rolls-Royce, but with the share price rising sharply since the US election last November, in line with the rest of the aerospace and defence sector, I believe the improved outlook is already in the price with the shares now trading at a steep 29 times forecast earnings for 2017.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. 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.