What Is Associated British Foods plc's (LON:ABF) Share Price Doing?

·3 min read

Today we're going to take a look at the well-established Associated British Foods plc (LON:ABF). The company's stock saw significant share price movement during recent months on the LSE, rising to highs of UK£19.60 and falling to the lows of UK£15.49. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Associated British Foods' current trading price of UK£15.80 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Associated British Foods’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Associated British Foods

What's the opportunity in Associated British Foods?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Associated British Foods’s ratio of 15.76x is trading slightly above its industry peers’ ratio of 13.25x, which means if you buy Associated British Foods today, you’d be paying a relatively reasonable price for it. And if you believe that Associated British Foods should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Although, there may be an opportunity to buy in the future. This is because Associated British Foods’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Associated British Foods generate?

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earnings-and-revenue-growth

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 52% 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 industry price multiples. 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 ABF? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on ABF, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for ABF, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into Associated British Foods, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Associated British Foods, and understanding this should be part of your investment process.

If you are no longer interested in Associated British Foods, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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