Should You Think About Buying Compass Group PLC (LON:CPG) Now?

Compass Group PLC (LON:CPG) maintained its current share price over the past couple of month on the LSE, with a relatively tight range of UK£17.89 to UK£19.50. However, does this price actually reflect the true 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.

See our latest analysis for Compass Group

What Is Compass Group Worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 4.87% above my intrinsic value, which means if you buy Compass Group today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is £18.36, 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 does the future of Compass Group look like?

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. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Compass Group's earnings over the next few years are expected to increase by 61%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in CPG’s positive outlook, 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 confidence to invest in the company should the price drop below its fair value?

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

So while earnings quality is important, it's equally important to consider the risks facing Compass Group at this point in time. Case in point: We've spotted 1 warning sign for Compass Group you should be aware of.

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.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.