Buying a stock at a 52-week or all-time high is a risky proposition.
You have to take into account the potential for hype and overinflated expectations, while simultaneously remembering the potential of great businesses to grow over time.
Imagine if you'd bought Woolworths Limited (ASX: WOW) at its highest point yet of $19.61…back in 2006. Even worse, imagine if you'd sold!
That dilemma lies at the heart of today's article. Should you buy, sell, or hold these three companies?
DuluxGroup Limited (ASX: DLX) – last traded at $6.82, up 21% in the past year
Back in March I wrote that Dulux's problems were good ones for shareholders to have – demand for Dulux products has outgrown the ability of the current operating site to produce them.
While development of the new site is far from cheap, the cost savings are expected to be significant and Dulux shareholders should reap positive benefits even if revenue stays at 2015 levels.
Thrifty investors apparently like the idea of cost savings, because Dulux shares have risen to the point where they look expensive right now. There are cheaper shares with better growth prospects out there, but I believe Dulux will continue to perform over time.
So while I am not confident enough to buy Dulux at today's prices, I would feel comfortable holding shares for the next few years.
iiNet Limited (ASX: IIN) – last traded at $9.72, up 35% in the past year
Market watchers won't be surprised to see iiNet Limited in today's article after the group received a takeover offer from TPG Telecom Ltd (ASX: TPM) earlier this year.
Both iiNet and TPG shares soared after the offer was made, and iiNet shares have catapulted even higher today after news that competitor M2 Group Ltd (ASX: MTU) has gone one better than TPG's $1.4 billion bid.
(Contributor Ryan Newman covered M2's offer in greater depth here)
M2 Group's offer was reportedly worth around $1.5 billion, $100 million higher than TPG's offer. iiNet shareholders have done well out of the competition, but given that the company's current market cap is $1.58 billion, it appears that the upside has already been taken off the table.
That is unless TPG is forthcoming with a higher offer. iiNet is another company I would be holding right now, or selling if shares soar beyond the value of the takeover offer.
Domino's Pizza Enterprises Ltd. (ASX: DMP) – last traded at $38.01, up 84% in the past year
Up 83% in the past year, 650% in the past five years, and 1,660% in the past 10 years (before dividends!), can anything stop Domino's Pizza Enterprises?
Domino's is a classic example of my earlier Woolworths dilemma. Trading on a Price to Earnings (P/E) equation of around 70, this company is far from 'cheap', but selling it at any point in the past decade would have seen you miss outstanding returns.
One slip could see the stock sharply re-rated thanks to investor disappointment, however while Domino's continues to deliver high Returns on Equity and Capital, shareholders will continue to reap the rewards.
The likelihood of further international growth is also a big plus, and I believe Domino's still represents a buying opportunity today.
