Undemanding valuations and reasonable growth prospects

The products of both our companies this week are well known to most people, and both businesses have decent potential to grow their profits. Neither is on a particularly stretched valuation, possibly because they are struggling to convince investors that big growth pushes will come to fruition, but with the baseline growth not exorbitantly priced, positive surprises could see investors do well. 

Associated British Food's (ABF) somewhat volatile earnings and the battering taken by Primark during Covid-19 – as it had no online business that customers could buy from – has meant that it has been a disappointing investment over the last decade. 2023 has brought happier times with the shares up by more than 50 per cent. Primark has recovered strongly from Covid-19 with its low prices unsurprisingly wooing cash strapped customers across the world. The Grocery and Ingredients businesses have all performed well. Put together, ABF has performed much better than investors expected at the start of the year. The key question is: what comes next?

Meta Platforms (US:META) is a business that most investors will understand reasonably well. This is because millions of people use one of its Facebook, Instagram and WhatsApp apps on a regular basis. Competition for Facebook and Instagram continues to increase from the likes of Tik Tok and Snapchat. Rumours that Amazon is considering allowing Snapchat to make purchases from within the app would be a coup for the platform and could drive some customers away from Instagram. That said, Meta’s family of apps business currently looks to be in rude health with healthy profits growth in 2023 following a difficult 2022.

Whether this business can continue to deliver the necessary rates of growth to keep investors happy remains to be seen. At the moment, Wall Street analysts think it will, based on their current profit forecasts.