Compass Group (LON: CPG) stock surge 8%: Should you buy?

FTSE100 listed foodservice company, Compass Group Plc (LON: CPG), which operates in Europe and North American markets, witnessed a surge of over 8% in stock price, notching a new 52-week high of GBX 1,797. Compass Group Plc, one of the largest contract foodservice providers worldwide serving meals to various locations like schools, offices, and factories, announced its business update for the first quarter ended 31 December 2021, posting stellar performance that led to a surge in stock price.

Q1 earnings- continued improvement across sectors

The company witnessed a strong business environment, which resulted in a 38.6% growth in organic revenue on a year-on-year (YoY) basis. The higher growth was driven by strong client retention, new business progress as well as recovery in exiting the business group.

The rise of the Omicron variant during the period had a minimal impact on business operations. As a result, its revenue reached 97% of its pre-Covid levels. Also, performance across the different regions like North America (51.1%), and Europe (25%), improved compared to the previous quarter.

In addition, four out of the five sectors in which the company operates traded above 100% in terms of revenue when compared to 2019. Business & Industry was the only segment that showed slow recovery, with revenue being 77% of the 2019 period because of delays in offices reopening. For future business growth, the company spent £87 million acquiring several smaller companies which operate in the same line of business in North America.

Future outlook

Riding on the solid performance in the first quarter, the company expects similar growth to continue in 2022. The structural growth opportunities across different regions could lead to a potential rise in revenue and profits. The company expects its full-year organic revenue growth to be 20-25%, with an underlying operating margin of over 6%.

However, the company is cautious as the future outlook could be impacted by a sudden rise in the Covid-19 cases, leading to further delays in office openings and cancellation of sports & leisure events.

Stock performance

After the result announcement, the stock price was up by over 8%, with a day’s high of GBX 1,797 and a current market cap of £29,502 million as of 3 February 2022. In the last one year, the stock has given a 31.4% return to its shareholders.