The Costa Group Holdings Ltd (ASX: CGC) share price has shot up more than 7.5% today to a new all-time high of $4.74.
As the chart below highlights, the shares have enjoyed an extremely strong run over the past 12 months with a gain of more than 62%.
For investors unfamiliar with the company, Costa Group is Australia's leading grower, packer, and marketer of fresh fruit and vegetables.
It has around 3,500 planted hectares of farmland, 30 hectares of glasshouse facilities and seven mushroom growing facilities across Australia. Costa also has strategic foreign interests, with berry farms in Morocco and China.
Although the company has not released any news to the market today, it appears a broker upgrade from Goldman Sachs is behind today's share price spike.
Analysts are bullish on the stock, following Costa's decision to acquire Avocado Ridge last December for $50 million. Goldman believes the demand for avocados will grow steadily over time and the company will have the opportunity to send some of its crop into export markets over the medium term.
The broker also believes Costa is well positioned to make further acquisitions that would allow the company to become the largest grower of Australian avocados and ensure it has an all-year round supply.
Overall, Goldman believes the shares are currently undervalued and has set a price target of $5.10.
Interestingly, Costa recently upgraded its full-year outlook on the back of strong trading conditions and the Avocado Ridge acquisition. The grower now expects to deliver FY17 underlying NPAT growth of approximately 25%, up from its earlier guidance of at least 15%.
Should you buy?
There is no doubt that Costa is enjoying a period of strong growth, but investors need to remember that the company faces a unique set of risks as an agricultural company.
At around 25x forward earnings, I don't think investors are being offered a particularly attractive risk-reward proposition, especially since many of the risks are largely outside of the company's control.
Nevertheless, Costa is a company worth keeping a close eye on and could be a good investment at lower prices.
