Why I want to buy Costa Group Holdings Limited shares

I think Costa Group Holdings Limited (ASX:CGC) could be a good buy.

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Costa Group Holdings Ltd (ASX: CGC) is one of the shares that I'd really like to add to my portfolio.

It's a food produce company that has only been on the ASX for a couple of years, but it has already made waves. A year ago the price was $2.84 and today it's $6.35, representing a strong 123% rise.

There are strong underlying reasons why I like Costa, here's why:

Diverse products

There are some good companies on the ASX that have a large focus on one food type. For example, Select Harvests Limited (ASX: SHV) concentrates on almonds and Tassal Group Limited (ASX: TGR) focuses on farming salmon.

Costa has a much more diverse product range. It grows tomatoes, berries, citrus fruit, mushrooms and avocadoes. This mitigates risk if one product has a bad year and also means the business can expand whichever product line it thinks is best.

Geographically diverse

Climactic and political conditions can be a danger to any food company. Costa has a global strategy with farms in Australia, China and Morocco.

Growing in different continents allows the business to sell to different regions and generate good revenue all year round.

Growth

To have the best chance of beating the market over the long-term you need to identify businesses that will grow at a good pace.

In FY17 Costa grew revenue by 10.7%. In FY18 management expect that net profit after tax pre fair value movements in biological assets will grow by 10%.

I think Costa is likely to have many years of double digit growth ahead.

Food shortages?

Industry experts have been saying for many years that if the human population keeps growing then we will start seeing food shortages in more places than just the poorest countries.

That's hard to believe in a country like Australia where there is so much food wastage. But a global producer like Costa could see increasing food prices.

Foolish takeaway

The biggest risk I see to Costa is that it's trading quite expensively. It's currently trading at 35x FY17's earnings with a grossed-up dividend yield of 2.47%.

I think Costa will be a market-beater over the next three years and I'd really like to add it to my portfolio at some point in the future.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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