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1 of the most popular UK stocks right now, according to investors

A young Asian woman holding up her index finger
A young Asian woman holding up her index finger

Rather than using index filters or focusing on a specific sector, I’ve started to find investments by looking at stocks being viewed by other investors. This is certainly not a foolproof strategy, as companies can become popular for many reasons. However, looking at the most searched-for stocks in the market within the last 24 hours can narrow the number of options I need to research.

For that reason, I used software to highlight which UK stocks have recently been searched for by investors, producing a list of 10 companies. The vast majority of this list is traded on smaller exchanges with market capitalisations below £50m. I’m not particularly interested in such stocks, as they can be very volatile, so significant gains and falls in the share price can attract many investors and make them appear popular.

An interesting find

However, one company that grabbed my interest (while also clearly being of interest to many other UK investors) was Associated British Foods (LSE: ABF). The company operates in a number of core sectors, from agriculture to grocery services and even sugar. But it’s the retail segment that is its most significant turnover contributor, and arguably its most recognisable holding. This is due to it operating the hugely popular clothing chain Primark.

The share price has struggled over the last few years, falling 26.3% this year. It’s also down just over 45% from pre-pandemic levels. Despite this, the price-to-earnings (P/E) ratio is above the FTSE 100 average at almost 18. However, this is forecast to fall dramatically to just 11.3 in the next year.

Why is it so popular?

I find it useful to try and get to the root cause of the stock’s popularity in the last 24 hours, and in ABF’s case, it’s due to the release of its annual results and final dividend. These results were strong, with turnover growing by 22% and profit growing by 48%. Management expects significant growth in sales and profit as part of its full-year outlook in 2022. This is very encouraging and helps to explain the 5% rise in price that occurred in those 24 hours and why it was of interest to many UK investors.

The full picture

However, these optimistic forecasts are somewhat misleading. They come on the back of a significant decline in performance in the last two years compared to pre-pandemic levels. A number of its core fundamentals are still below its three-year average. Profit margins could be more encouraging at 7.4%, below the average of 8.7% over the last few years. Likewise, free cash generation could be better at 70.8%, which is also below the historical average of 85%. Additionally, debt levels have risen significantly, reaching just shy of 33% of market capitalisation.

Nonetheless, looking at the most popular shares may have allowed me to find an intriguing new opportunity. The positive sentiment outlined by management in the latest update, could be a step in the right direction. Therefore I would like to add the company to my portfolio. However, I intend to wait until the financial year end to determine if the negative trend has reversed.

The post 1 of the most popular UK stocks right now, according to investors appeared first on The Motley Fool UK.

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Gabriel McKeown has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2022