Compass (LSE: CPG) has been serving up a deal with for buyers over the previous yr, with the shares rising an appetising 17%. Because the world’s largest contract foodservice firm, this worth inventory’s been cooking up a storm within the markets. However after such a hearty run, I’m questioning if it is likely to be time for buyers to look elsewhere for his or her subsequent course.

An important yr

Let’s tuck into what’s been driving this stellar efficiency. The corporate’s proven exceptional resilience within the face of world financial uncertainties. The most recent earnings report revealed an honest 13.8% progress in earnings over the previous yr. With robust progress in important merchandise throughout a interval of world uncertainty, it’s no shock to see the market loving this one.

Working in over 50 nations and serving up billions of meals yearly, the agency’s confirmed it has a recipe for achievement. The corporate’s enterprise mannequin, centered on on-premises catering somewhat than centralised kitchens, has given it a aggressive edge. And it’s not simply concerning the meals – administration has been increasing its menu of providers to incorporate cleansing, workplace assist, and grounds upkeep.

Feeling full?

However right here’s the place I begin to really feel a bit full. The shares are presently buying and selling at a price-to-earnings (P/E) ratio of 29 occasions, which is sort of a wealthy valuation within the sector. Analysts are forecasting about 4% of progress for the shares within the subsequent yr or so, which doesn’t encourage me.

Furthermore, whereas income progress’s been sturdy, its revenue margins are trying fairly skinny. The corporate’s internet revenue margin stands at a mere 4.27%. Within the cut-throat world of contract catering even a small change in prices might take an enormous chunk out of earnings.

The most important focus for me is the debt on the corporate’s plate. With a debt-to-equity ratio of 70.5%, the corporate’s stability sheet isn’t as robust as I’d like for an organization which has been in rally mode for the perfect a part of 5 years. In an setting of financial uncertainty, this degree of debt might give buyers actual heartburn.

Navigating a fancy sector

Nevertheless it’s not all doom and gloom right here. Analysts are forecasting earnings progress of 11.99% a yr, which suggests there’s nonetheless loads of progress forward if prices might be managed. The corporate additionally affords a dividend yield of 1.9%, offering somewhat sweetener for income-focused buyers.

The administration crew, led by CEO Dominic Blakemore, has proven they know how to navigate the complicated world of world meals providers. Their deal with increasing into high-growth areas and bettering effectivity has stored the corporate rising via among the most difficult occasions for the sector in current historical past.

Nonetheless, after such a robust run, I can’t assist however surprise if the shares are due a breather. The market appears to have already recognised loads of excellent news, and any stumble in execution might result in a pointy drop. I definitely don’t need to be becoming a member of the occasion simply because the music stops.

Ultimately, whereas this worth inventory’s completed nicely available in the market currently, I feel the present valuation suggests it is likely to be a bit overcooked. I’ll be holding it on my watchlist, however received’t be investing any time quickly.