Compass (LON: CPG) share price plunged to the lowest level since October 13 as investors reacted to the company’s earnings. It plunged to a low of 1,768p, which was about 7% below the highest level this month.
Compass Group is the biggest catering services group in the world with a market cap of over £32 billion. The firm provides meal services to institutions like hospitals, schools, and oil rigs. It has operations in 40 countries and has over 55,000 employees. Some of its top customers are firms like Eurest, Morrison Healthcare, Chartwells, and ESS.
In a statement, Compass Group said that its underlying revenue jumped from over £18.7 billion in 2021 to over £25.8 billion in 2022. Its operating profit jumped from £848 million to over £1.59 billion as its operating margin jumped to 6.2%.
Further results showed that Compass Group’s fee cash flow rose from £660 million to £890 million. As a result, the management decided to buy back £250 million shares in the first half of the 2023 financial year, bringing the total repurchase to £750 million.
Additional metrics show that the company’s business is doing well as new business wins rose to £2.5 billion. It attributed this growth to its European and North American businesses. It expects that its operating profit will rise above 20% in 2023.
Compass share price dropped after the stellar results because of a warning about soaring inflation. As a result, many companies have increased their outsourcing. In a statement, the firm’s CEO said:
“Looking further ahead, we remain excited about the significant structural growth opportunities globally, leading to the potential for revenue and profit growth above historical rates, returning margin to pre-pandemic levels, and rewarding shareholders with further returns.”
Still, despite the post-earnings dip, I believe that Compass is a good stock to buy. The firm has a strong market share, growing profitability, and steady dividends. It will also benefit as inflation starts easing.
The four-hour chart shows that the CPG stock price gapped downwards after the company published strong results. Before that, the stock was forming a rising wedge pattern. It has moved below all moving averages and retested the key support level at 1,768p. The Relative Strength Index (RSI) has moved below 50.
Therefore, while the company has strong fundamentals, the technical chart points to more downside if it manages to move below 1,760p. A move above the resistance at 1,800p will invalidate the bearish view.
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