Shell's share price is flying. Time to buy?

A stock price graph showing growth over time
A stock price graph showing growth over time

The last year has been a hugely successful period for investors in Shell (LSE: RDSB). The company has benefitted from a rising oil price, and this has helped to catalyse investor sentiment.

Over the course of the last 12 months, it has risen by 22%. At the present time, it is showing little sign of slowing its rate of growth. As a result, could it be worth buying alongside another stock which has also delivered significant growth in recent months?

Improving prospects

As mentioned, the outlook for the oil sector has improved dramatically in the last year. The price of Brent has increased by around 50% during that time. While there is no guarantee that further growth is ahead, the prospects for the industry appear to be much brighter than they previously were.

Profitability is clearly likely to improve across the industry. A higher oil price will also allow Shell a greater opportunity to reduce leverage following the BG acquisition, while its asset disposal programme could move at a quicker pace if cash flow across the industry improves.

With the company forecast to post a rise in its bottom line of 10% in the next financial year, it looks set to deliver on its growth potential. Despite this, it trades on a price-to-earnings growth (PEG) ratio of just 1.4, which suggests that it could still offer a wide margin of safety. This may be a requirement for new investors, since the oil price could remain volatile over the medium term.

Furthermore, with Shell having a yield of 5.1% from a dividend which is due to be covered 1.5 times by profit in the current year, solid income growth could be ahead for the company's investors. As such, now seems to be a perfect time to buy it.

Growth potential

Also delivering a rising share price in the last year has been rental equipment specialist Ashtead(LSE: AHT). The company's shares have risen by 38% during that time, with the business reporting positive results on Tuesday.

In the financial year to 30 April, revenue increased by 20%, with earnings per share increasing by 26% to 127.5p. During the period, the company invested £1.2bn of capital, while it was able to spend £392m on bolt-on acquisitions. Despite this, net debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) declined from 1.7 times in 2017 to 1.6 times in 2018.

Looking ahead, Ashtead is expected to post a rise in earnings of 20% in the current year, followed by further growth of 12% next year. The stock trades on a PEG ratio of 1.3, which suggests that it remains cheap even after its share price rise. And with the company having what appears to be a strong balance sheet and sound cash flow, its future prospects appear to be bright. As a result, it could generate further share price growth in future.

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Peter Stephens owns shares of Royal Dutch Shell B. 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.