The Motley Fool

Why I reckon this resilient FTSE 100 stock looks set to return to former glories

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Business development to success and FTSE 100 250 350 growth concept.
Image source: Getty Images

Before the pandemic, international food and support services provider and FTSE 100 stock Compass (LSE: CPG) was a consistent growth performer. Indeed, revenue, earnings, cash flow and shareholder dividends all rose incrementally over several years. And the stock rewarded the company’s shareholders by advancing around 450% over a decade.

The share price had been driven by the underlying operational progress and a gradual valuation up-rating. It’s rare for solid growth to go unnoticed by the stock market, and Compass was no exception.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Why Compass is an FTSE 100 stock I’d buy

However, the Covid-19 crisis hit the stock and the business hard. The share price plunged by more than 50% in the spring. And today’s full-year results report reveals the extent of the financial carnage suffered by the firm. The figures, for the trading year to 30 September, show that revenue slipped by almost 20% compared to the prior year.

That looks relatively modest, but underlying earnings per share crashed by nearly 78%. Free cash flow also plunged by almost 83%. And we can forget the final dividend for the year, it’s toast.

But Compass has been a strong Covid survivor. The company adapted and kept providing its foodservice offering wherever it could. The many staff worked hard to make operations Covid-secure, and the company even managed to renegotiate some of its contracts to allow for the extra costs of the pandemic. All that effort has been worthwhile. In the fourth quarter, the business returned to profitability and is now “cash-neutral”.

The market received the news well this morning, and the share price is up around 5%, as I write. But I think the stock has a long way to travel. At today’s 1,410p, the shares are still almost 30% below their February level near 1,953p.

And, back in February before the crisis hit, chief executive Dominic Blakemore reckons the company was on track to deliver our strongest performance ever.” My guess is the business will unwind from the effects of the pandemic and resume its growth trajectory. And the new vaccine announcements from Pfizer, Moderna and AstraZeneca are encouraging and supportive. If the world can get back to somewhere near ‘normal’, I’d expect demand for the Compass offering to rise.

Improving performance

The signs are good already. For example, through the summer, the company’s performance “began to improve slowly” as it served clients in education, business and industry. If the general return to schools and offices continues, it looks like business will rise for Compass.

Blakemore reckons “the scope for growth from first time outsourcing and (market) share gains is significant.” There’s also a strong pipeline of new business in “Healthcare & Seniors, Education and Defence, Offshore & Remote.”

He thinks the quality of the business is improving and Compass will emerge from the pandemic stronger than it’s ever been. Despite the forward-looking earnings multiple just below 40 for the current trading year, I’m tempted to pick up a few of the shares for the long term. 

I'd also consider building a portfolio with these five stocks.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Compass Group. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.