This FTSE 100 stock could continue to soar but it still looks undervalued!

Our writer explains why she thinks this FTSE 100 stock looks attractive despite its share price rising, thanks to its wide footprint and market dominance.

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One FTSE 100 stock I’ve been considering buying for some time is Associated British Foods (LSE: ABF). Here’s why I like the look of the shares and would buy some the next time I have some investable cash.

Primark owner

Associated British Foods – referred to as ABF – owns a number of food brands under its umbrella. Aside from this, it also owns the popular Primark brand with its low-cost clothing and home ware business model proving to be popular. I’ll admit I love a Primark visit, personally.

So what’s happening with ABF shares? As I write, they’re trading for 2,393p. At this time last year, the shares were trading for 1,668p, which is a 43% rise over a 12-month period. This is impressive as many FTSE 100 stocks have struggled due to macroeconomic volatility.

Defensive qualities, enticing valuation, and solid fundamentals

ABF possesses defensive traits, if you ask me. It manufactures and sells lots of essential and well-known food. Food will always have an defensive element, in my opinion. After all, everyone has to eat.

Moving on, Primark has seen its popularity soar in recent years and due to the current volatility, it is proving to be a great asset for ABF. This is due to its low cost options, which seem to be popular with consumers.

Let’s look at some fundamentals then. ABF shares are currently trading on a price-to-earnings growth (PEG) ratio of just 0.7. A reading of under one indicates the shares are undervalued. This is interesting for me, especially as the shares have been performing well.

In addition to this, a dividend yield of 2.5% adds to my investment case. There are higher yields out there and dividends are never guaranteed. However, I’m more interested in consistent dividends from a business that possesses a wide footprint and dominant market position, which ABF does.

Finally, at the beginning of November, ABF released full-year results for the year ended 16 September 2023. The business reported excellent results. Revenue, operating profit, profit before tax, earnings-per-share, and its final dividend all rose.

Risks and final thoughts

One of the biggest risks for ABF is that of continued macroeconomic volatility. For example, rising costs could dent margin levels if these higher costs impact its food manufacturing processes. Raising prices could offset this, but when this happens, people can seek cheaper non-branded alternatives. I’ll continue to keep an eye on performance updates.

In addition to this, if the UK economy ends up veering towards a full-blown recession, growth plans for ABF could be hit hard. This could also hurt future performance and potential returns.

To conclude, I reckon ABF shares look good value for money right now. I wish I had snapped up the shares sooner but I still think there’s an opportunity to buy cheap shares at present and they should continue to head upwards, especially once volatility subsides.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods Plc. 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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