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At UK£15.40, Is It Time To Put Compass Group PLC (LON:CPG) On Your Watch List?

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Let's talk about the popular Compass Group PLC (LON:CPG). The company's shares received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£16.25 at one point, and dropping to the lows of UK£14.22. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Compass Group's current trading price of UK£15.40 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Compass Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Compass Group

What is Compass Group worth?

According to my valuation model, Compass Group seems to be fairly priced at around 16.95% above my intrinsic value, which means if you buy Compass Group today, you’d be paying a relatively reasonable price for it. And if you believe that the stock is really worth £13.16, then there isn’t really any room for the share price grow beyond what it’s currently trading. Furthermore, Compass Group’s low beta implies that the stock is less volatile than the wider market.

What kind of growth will Compass Group generate?

earnings-and-revenue-growth
earnings-and-revenue-growth

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With revenues expected to grow by 61% over the next couple of years, the future seems bright for Compass Group. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? CPG’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on CPG, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 1 warning sign with Compass Group, and understanding it should be part of your investment process.

If you are no longer interested in Compass Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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