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TO FTSE 100 The stocks I plan to buy the next time I have some cash to invest are Compass Group (LSE: GPC). Here’s why I think the business can thrive if a bull run were to occur.
Banquet services
Compass Group is one of the largest contract catering companies in the world, operating in more than 50 countries. There is a good chance that you have used their services if you have frequented a hospital, office or other public building in the UK.
As I write, Compass shares are trading at 2,101p, up 15% over a 12-month period. They were trading at 1,822p this time last year.
More recently, macroeconomic volatility, including soaring inflation and rising interest rates, has seen many FTSE 100 stocks fall. Compass shares have fallen 5% since May, from 2,235p to current levels .
The bull and bear case
It’s fair to say Compass has seen turbulent times in recent years. The pandemic caused demand for its services to fall off a cliff due to lockdowns, home working and lack of travel and leisure. However, in my opinion, business has continued to recover. Compass’s extensive footprint and dominant market position are enviable and a big bullish trait for me personally. These factors should help boost investor performance and profitability once macroeconomic issues subside.
Next, Compass’ most recent update, a third-quarter statement in July, was a good read. Organic revenue growth reached 15% compared to the same period last year. Year-to-date, revenue growth reached 21%. I’m looking forward to seeing full-year results later this year, but the outlook is encouraging so far.
Moving on, Compass shares would add to my passive income with a dividend yield of 1.9%, which is certainly below the FTSE 100 average yield of 3.8%. However, I believe Compass can increase its payouts if a bull run were to occur and yield growth continues on an upward trajectory, as seen in recent updates.
Turning then to the bear case, Compass is at the mercy of rising costs. Food inflation has been one of the most affected in recent months. These higher costs could impact Compass’ results and investor returns.
Additionally, Compass could see demand for healthier alternatives impacting its profit margins as well. Consumer insight analyst Mintel believes health awareness is increasing. The problem for Compass is that these healthier meals can cost more to produce, which in turn affects potential profits.
Pointing in the right direction
To conclude, I think Compass stock should boom if we enter a bull market. Its dominant market position and extensive coverage will help.
A growing population and increased urbanization should also benefit Compass. A passive income opportunity now It also helped me reach my investment conclusion. Let me be clear: short-term volatility could hamper the business, but since I invest for the long term, I would be prepared for some bumps along the way.
