Shares in Aga (LSE: AGA) have soared during the last year. We tipped them at 73p in December 2012, when they were unloved, and they have now risen to around 185p, largely due to a resurgent housing market.
Aga’s management has worked hard to keep the business going when times were tough. That said, sales of its iconic Aga cookers have always tended to follow the fortunes of the UK housing market.
Throw in the fact that Aga has a lot of fixed costs which makes its profits very sensitive to changes in sales, and you have the recipe for soaring profits. They increased by more than a quarter last year.
City analysts think the good times will continue to roll and that this will result in earnings per share surging by 59% in 2014 and by a further 23% next year.
Back in December 2012, Aga’s shares were changing hands for just over seven times expected earnings. Today the multiple is over 15 times. The stockmarket likes fast-growing profits, but history tells us that Aga’s can shrink as fast as they can rise. The shares could keep on going up, but smart investors may want to consider selling out while the going’s good.
Verdict: take profits