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A FTSE 100 stock I’m planning on buying when I next have some investable cash is Compass Group (LSE: CPG). Here’s why I reckon the business can flourish if any bull run were to occur.
Catering services
Compass Group is one of the largest contract catering businesses in the world, operating in over 50 countries. There’s a good chance you’ve used its services if you’ve frequented a hospital, office, or other public building in the UK.
As I write, Compass shares are trading for 2,101p, which is a 15% increase over a 12-month period. They were trading for 1,822p at this time last year.
More recently, macroeconomic volatility including soaring inflation and rising interest rates have caused many FTSE 100 stocks to 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 experienced some turbulent times in recent years. The pandemic saw demand for its services fall off a cliff due to lockdowns, home working and a lack of travel and leisure. However, the business has continued to bounce back, in my opinion. Compass’ wide footprint and dominant market position are enviable and a big bullish trait for me personally. These factors should help boost performance as well as investor returns once macroeconomic issues cool.
Next, Compass’ most recent update — a Q3 statement in July — made for good reading. Organic revenue growth reached 15% compared to the same period last year. For the year to date, revenue growth reached 21%. I’m keen to see full-year results later in the year, but the outlook is encouraging so far.
Moving on, Compass shares would boost my passive income with a dividend yield of 1.9%, which is admittedly below the FTSE 100 average yield of 3.8%. However, I reckon Compass can grow its payouts if a bull run were to occur and performance growth continues on an upward trajectory as seen in recent updates.
Moving to the bear case then, Compass is at the mercy of rising costs. Food inflation has been one of the worst hit in recent months. These higher costs could see Compass’ bottom line and investor returns impacted.
To add to this, Compass could see demand for healthier alternatives also impact its profit margins. Consumer insight analyst Mintel reckons health-consciousness is increasing. The issue for Compass is that these healthier meals can cost more to produce, in turn, denting potential profits.
Pointing in the right direction
To conclude, I reckon Compass shares should flourish if we were to enter a bull market. Its dominant market position and wide coverage will help.
A growing population and increased urbanisation should benefit Compass, too. A passive income opportunity now also helped me come to my investment conclusion. Let me be clear, short-term volatility could hinder the business, but as I invest for the long-term, I’d be prepared for a few bumps in the road.
