One of the best performing shares on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) so far today has been Cleanaway Waste Management Ltd (ASX: CWY).
It's share price has gone gangbusters today following the release of the waste management company's full year results. In early afternoon trade its shares have climbed a massive 13% to $1.02, much to the delight of its long-term shareholders.
In the last five years the company has produced a reasonably disappointing and inconsistent performance characterised by poorly performing acquisitions and high capital expenditures. But if this year's performance is a sign of things to come, then Cleanaway Waste Management might start attracting a bit of interest from investors.
For the full year sales revenue may have increased a good 5.1% to $1,455 million, but it was the 38.5% increase in underlying profit after tax to $63.3 million that will steal the headlines.
Management revealed the margin expansion that drove the strong bottom line performance was a result of an increase in collection volumes and greater cost control. Clearly the company's growth initiative has paid off.
Furthermore, despite a challenging environment all of the company's segments posted positive EBITDA growth. This put the company in a position to reduce its debt slightly and increase its full year dividend to a fully franked 1.7 cents per share.
For the year ahead CEO Vik Bansal painted a fairly bright picture. He stated that:
"Market conditions are expected to show little change from those experienced during the past year. However, based on the company wide initiatives we are undertaking, both our Solids and Liquids & Industrial Services segments should report increases in operational earnings in FY17."
So should you invest? Based on its full year earnings per share of 4 cents, Cleanaway's shares are changing hands at 25x earnings. Considering the inconsistent results of the past five years, I would be hesitant to make an investment at the current price.
In fact, it may take a few years of solid growth to convince me that this isn't a one-off. Instead investors may want to take a look at other industrials shares such as Brambles Limited (ASX: BXB) or Xenith IP Group Ltd (ASX: XIP).
