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Today we're going to take a look at the well-established Associated British Foods plc (LON:ABF). The company's stock led the LSE gainers with a relatively large price hike in the past couple of weeks. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine Associated British Foods’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for Associated British Foods
What's The Opportunity In Associated British Foods?
According to my valuation model, Associated British Foods seems to be fairly priced at around 18% below my intrinsic value, which means if you buy Associated British Foods today, you’d be paying a fair price for it. And if you believe the company’s true value is £23.74, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Associated British Foods’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Associated British Foods generate?
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. With profit expected to grow by 68% over the next couple of years, the future seems bright for Associated British Foods. 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? ABF’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 ABF, 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 further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.