Should you buy multi-bagging stocks Breedon Group plc or Marshalls plc?

Cement and asphalt producer Breedon Group(LSE: BREE) today announced the acquisition of Staffs Concrete Limited,  a 'mini mix' concrete operator based in Stoke-on-Trent. This is the latest in a long line of bolt-on purchases helping to fuel Breedon's fast-paced revenue and earnings growth. Over the past five years, the share price is up around 250%.

Building market share

Staffs Concrete's fleet of eight mixer trucks and two concrete pumps specialise in delivering small loads of ready-mixed concrete and screeds to customers in Staffordshire. The enterprise will sit well as part of Breedon's existing mini mix operations, which serve the West, East Midlands and East Anglia. Chief executive Mike Pearce said the acquisition "further strengthens our overall position in a key market." 

Breedon runs a big operation with, at a recent count, a cement plant, two cementitious import terminals, around 60 quarries, more than 30 asphalt plants, over 200 ready-mixed concrete plants and three concrete products plants. The firm supplies cementitious products, crushed rock, sand, gravel, asphalt, ready-mixed concrete, mortar, various concrete products and contract surfacing services.

Some investors are convinced that UK-facing cyclical businesses like this one are poised for a prolonged period in the economic sun, and recent results demonstrate Breedon is trading its concrete socks off right now. Last month's full-year report revealed revenue up 43% compared to the year before, underlying earnings per share 19% higher and a reduction of 31% in net debt.

Strong trading

We've seen a similarly strong trading performance from landscape products supplier Marshalls (LSE: MSLH). Over the last five years, the share price is up around 230%, driven by robust annual increases in revenue and earnings. Much of the growth has been organic, but the October 2017 acquisition of CPM Group Ltd contributed to the revenue reported in January's trading update, and Marshalls said the operation "has traded strongly since joining the Group."

Marshalls is another UK-facing cyclical that could do well from here. The firm supplies hard landscaping products to the domestic, public sector and commercial-end markets such as aggregates, street furniture, minerals, stone cladding, paving, water management items, lighting, walling and mortars - all stuff that's in high demand when economic conditions are booming and in low demand when conditions get tough.

So which stock should you buy? City analysts following Marshalls expect earnings to increase 11% during 2018 and 8% in 2019. They expect earnings at Breedon to rise 8% in 2018 and 11% in 2019, so there's nothing much differentiating the two on earnings growth. Meanwhile, at today's share price close to 416p, Marshalls forward price-to-earnings (P/E) ratio for 2019 sits at 16. At 80p, Breedon's is also 16. Nothing between them on the P/E rating either. However, Marshall's pays a dividend and expects to yield 3.7% in 2019, whereas analysts expect Breedon to start paying a dividend that year, which will come in at a yield of just 0.4%, or so.

We could say that Breedon offers greater value to investors than Marshall because of dividends, but I think the P/E ratings are too high for both firms at this mature stage in the economic cycle. So I'm cautious on both of them and will look elsewhere for investments to propel me to financial independence.

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Kevin Godbold has no position in any of the shares mentioned. 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.

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