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Is the Costa Group (ASX:CGC) share price a cheap buy?

Costa Group Shares

Costa Group Holdings Ltd (ASX: CGC) has slipped under my radar this year. The Costa Group share price surged higher in 2018 before its market value tumbled in troubled times last year.

However, 2020 has been a funny year so far. The coronavirus pandemic has smashed many ASX shares and the March bear market saw valuations fall off a cliff. That wasn’t the case for the Costa Group share price which has managed to steadily climb 33.5% higher this year.

That includes a 2.8% surge in yesterday’s trade, which has me wondering if the Aussie food producer’s shares are a cheap buy today.

What does Costa Group do?

Costa Group is Australia’s largest horticultural company and a major Aussie food producer. The company specialises in fresh fruit and vegetables with major products including avocados, berries, citrus, mushrooms and table grapes.

The Costa Group share price has been performing well this year as the company’s market capitalisation has swelled to $1.34 billion with a 1.3% dividend yield.

Why the company’s shares are surging

It’s worth digging into why the Costa Group share price has been climbing in 2020. The major catalyst has been the strong demand factors, and more recently, a strong FY20 result.

Supermarket sales have surged in 2020 as panic buying and the shutdown of the hospitality sector increased demand for groceries. That has been good news for major food producers like Costa Group and Bega Cheese Ltd (ASX: BGA).

Strong demand translated into strong FY20 earnings as Costa Group posted a 6.8% increase in revenue to $612.4 million.

Net profit after tax and before self-generating and regenerating assets, leasing and material items (NPAT-SL) jumped 12% to $45.8 million.

That was enough to send the group’s shares surging to a new 52-week high of $3.74 per share in late August.

Is the Costa Group share price a cheap buy?

I think the FY21 outlook is still strong for Costa Group. Demand remains strong and tough restrictions are likely to boost supermarket sales in the early part of the year.

The Costa Group share price has retreated from its 52-week high to $3.5 per share and could be worth a look given the strong fundamentals.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. 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 Scott Phillips.

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