About five months ago, I wrote an article saying that Breville Group Ltd (ASX: BRG) shares might represent good value. Now, I think they may have gone too far.
About Breville
Breville Group was established in Melbourne in 1932 as a radio manufacturer, but during the 1960s the focus shifted to household products and kitchen appliances. Breville Group now includes the brands Breville, Kambrook, Sage and several others, and the products range from toasted sandwich makers to vacuum cleaners.
Breville distributes throughout Australia, North America, Europe and Asia.
Recent Performance
On 29th
January 2019, I wrote this article looking at the value of Breville shares. The share price then was $10.97.
If I had followed my own advice and actually bought the shares, I’d be up 55% today, with the share price sitting at $17.01, up another 6% yesterday despite no announcements.
In fact, Breville shares reached as high as $19.55 this year, almost doubling the opening price in January.
Unfortunately, I didn’t buy the shares, and I probably still wouldn’t today.
Growth
The Breville share price rise has largely been a result of an increased growth rate. Breville’s half-year report showed that year-on-year revenue growth in 1H19 was 15.4%. That was a big improvement from 7.7% revenue growth in FY18 and 5.1% in FY17.
Most of the growth came from Europe, which is still a relatively small market for Breville.
The concerning factor for me, and the thing that stops me from investing, is that it feels as though Breville is being priced like a growth share.
Breville currently has a price-earnings (PE) ratio of more than 31x, and the share price growth year-to-date rivals that of companies like Altium Limited (ASX: ALU) and WiseTech Global Ltd (ASX: WTC). This video explains how to do your own ratio valuations:
The fact is, Breville was listed in 1999. It’s not new or revolutionary, and it’s closer to being a blue-chip than a growth share.
The valuation, to me, seems to be based off an assumption that Breville can maintain the growth rates demonstrated in its half-year report, but I’m not confident that will actually happen.
That’s why I’d prefer to invest in one of the growth shares mentioned in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
