Flutter Entertainment (LSE:FLTR) is at the top of the FTSE 100 leader board of expensive stocks to watch in September. The £19bn company has seen its share price rise 85% over the past year. It now has a very high price-to-earnings ratio (P/E) of 75. The pandemic curbed its sporting revenues, but its poker and gaming products thrived. This allowed the group to post better-than-expected financial results for the first half of the year. However, pre-tax profits for this period crashed 70% to £24m.
Flutter is expecting regulatory changes in many of the jurisdictions it operates in, which could negatively affect future profits. Ensuring the business meets these changes will cost around £65m. This uncertainty, along with the ongoing global battle against Covid-19, means its future growth and revenues remain uncertain. It has already cancelled its dividend in response to the pandemic. I think this is an expensive stock that could have far to fall if its future results do not meet expectations.
Harnessing the power of steam
Spirax Sarco (LSE:SPX) is a FTSE 100 specialist engineering firm that creates products for the control and efficient use of steam and other industrial fluids. Steam seems an unlikely candidate for a best-selling product, but it can be used to heat or sterilise and is therefore vital in many manufacturing industries from energy to food and medicines.
It has seen its share price enjoy an upward trajectory over the past five years, although the past three have seen plenty of volatility. In the first half of this year, operating profit was down 8%. This was better than expected, but Spirax anticipates the second-half of the year will not meet previous expectations. Despite this, it raised its interim dividend, which now has a yield of 1%. Spirax Sarco has a P/E of 45 and earnings per share are £2.26. Despite the outlook being uncertain, volatility likely to continue, and its high share price, I do like this stock. It offers steam sterilisation solutions to critical industries, such as hospitals, where I imagine demand for a sterile environment will only increase.
Unlikely FTSE 100 stars of the pandemic
AstraZeneca, Just Eat, and Reckitt Benckiser also feature among the FTSE 100’s most expensive stocks to buy today. AstraZeneca is working hard on finding a vaccine to eradicate Covid-19, Just Eat is delivering meals to all those people too tired, bored or worried to cook, and Reckitt Benckiser struck it lucky as the most well-known manufacturer of disinfectant around. They have each shown their worth since news of the pandemic broke out, but their future growth potential is uncertain.
The trouble with expensive stocks is just that, they are expensive. It shows the company has been performing well, giving good reason for investors to be bullish. But when the P/E looks exorbitantly high, it can serve as a warning signal that this is as good as it gets and risk should now be factored in. Although there will always be some expensive stocks that continue to outperform all expectations, these are rare. As an investor it is important you do your homework on whether the expensive stock you are interested in buying is worth its asking price.
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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of Flutter Entertainment. The Motley Fool UK has recommended Just Eat Takeaway.com N.V. 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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