Many shares have pulled back in recent months due to macroeconomic and geopolitical headwinds. Compass Group (LSE:CPG) shares have bucked that trend. Could the rising Compass Group share price be an opportunity for me to buy quality shares?
Catering services
As a quick reminder, Compass Group is one of the world’s largest contract caterers. It has operations in approximately 45 countries across the globe. It offers its services to a multitude of sectors and locations such as schools, offices, and factories as well as travel companies. Furthermore, it owns and runs coffee shops, bakery stores, and vending machines too, which diversify its offering.
So what’s the current state of play with the Compass Group share price? Well, as I write, the shares are trading for 1,886p. At this time last year, the stock was trading for 1,484p, which is a 25% return over a 12-month period. I believe Compass Group shares have climbed due to pandemic restrictions easing.
Challenges
Firstly, macroeconomic headwinds could hamper Compass’ growth, performance, and returns in the near future. Soaring inflation, the rising cost of raw materials, and the supply chain crisis could impact it negatively. Rising costs could squeeze the profit margins that underpin performance, shareholder returns, and investor sentiment. Next, supply chain issues could have an impact on its operations and sales too.
Despite restrictions easing, alternative ways of working, educating, and travelling could have a negative impact on demand in the long term. Businesses may feel they do not need to contract catering as much anymore. This is something I will keep an eye on in future performance updates.
The positives and my verdict
So to the positives then. I noted that pre-pandemic, Compass had a consistent track record of performance. I do understand that past performance is not a guarantee of the future, however. Full-year results for 2022 are due later this year. These will provide me with insight into the company’s trading post-pandemic and whether it can regain pre-pandemic momentum. A Q3 update released today made for excellent reading, however. Sales momentum had pushed revenues above 2019 levels. Net new business levels increased and underlying margin levels increased too. Compass could be set to surpass pre-pandemic trading if these numbers are anything to go by.
Next, I am buoyed by Compass’ growth to date. It has become one of the largest in its sector. I believe its profile, presence, and diverse business model should set it in good stead to continue to perform and provide stable investor returns. It also has an eye on growth to continue expanding its reach above its current point.
I noted that Compass Group shares would boost my passive income stream through dividend payments. At present, its current dividend yield stands at 1.5%. I am aware that dividends can be cancelled at the discretion of the business at any time, however.
I like the look of Compass shares. The Compass Group share price has steadily climbed in recent months. This is a reflection of easing restrictions and performance heading back towards pre-pandemic levels. I believe it will continue to rise. The passive income opportunity is a bonus. I would add the shares to my holdings.