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Smart Investor: ABF – a good example of a share to avoid
Sometimes it is helpful looking at why a stock is not attractive. Associated British Foods (ABF), whose brands include store-cupboard stalwarts Kingsmill, Ovaltine, Patak’s and Twinings, may sound like a defensive company but its numbers just don't add up. Smart Investor explains why.
ABF shares are unattractive at the current price. Sure, the company is fundamentally sound, debt levels are low, interest cover is adequate and it enjoys a substantial economic moat. In addition, it has been profitable in each of the past five years, with a fairly impressive annualised growth rate to boot.
However, a below index average yield, a rich P/E, disappointing free cash flow and, in particular, a low ROE mean that it is simply not attractive enough to warrant investment.
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