The Motley Fool

This small-cap growth stock looks a far better buy than JD Wetherspoon plc

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Photo: Oast House Archive. Cropped. Licence:

Rising inflation, slowing wage growth and the shadow of Brexit are beginning to hit consumer confidence and spending. Should investors turn their backs on companies whose profits tend to be hit the hardest in times like these? Not necessarily.

The Real Deal?

As as a holder of stock in restaurant owner Fulham Shore (LSE: FUL) I was heartened by today’s final results and the market’s reaction to them. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Thanks to a raft of new openings (13 Franco Manca pizzerias and three The Real Greek restaurants), total group revenue grew by just over 41% to £41.3m over the last year. Group Headline EBITDA rose 36% to £7.1m with operating profit rocketing 153% to £1.3m from £500,000 just one year ago. 

Of course, expanding any business costs money so it comes as no surprise that net debt levels at the company have also increased 80% to £5.9m. Nevertheless, I’m comforted by the company’s strategy to expand at a reasonable rather than breakneck pace by waiting for “the right sites with the right rents“. This also feels prudent given the recent increase in food costs, reduction in the availability of skilled European restaurant staff and the possibility of ongoing terrorist activity impacting on the number of tourists visiting London (where the vast majority of the company’s sites are).

At first glance, shares in Fulham Shore look rather expensive at 28 times earnings. However, a price-to-earnings growth (PEG) ratio of under one suggests that new investors would still be getting great value for money. There’s no dividend on offer but that’s to be expected.

With a 38% rise in earnings now expected in 2018, I also think Fulham Shore might be a better buy than pub giant JD Wetherspoon (LSE: JDW), which issued a trading statement this morning.

Rising debts

A beneficiary of the recent warm weather, total and like-for-like sales at the Watford-based business rose by 3.6% and 5.3% respectively in the 11 weeks to 9 July. This compares favourably to the numbers for the year to date (total sales up 1.9%, like-for-like sales up 3.9%).  

Trouble is, I struggle to be convinced that its stock — on a valuation of 17 times earnings — looks good value for a number of reasons.

First, the huge estate of over 900 pubs will always be a burden. Indeed, the company expects capital expenditure to hit around £65m this year as a result of renovation work at some of its older sites. Tellingly, it has already indicated that this level of expenditure will continue or be slightly higher “for the next few years“. With just over 50 restaurants to its name, a more nimble operator like Fulham Shore looks far more appealing in this respect.

Despite stating that it “remains in a sound financial position“, Wetherspoon’s net debt levels have also been steadily rising over the last five years, from £463m in 2012 to today’s figure of around £715m. When you consider that the company is only valued at just under £1.1bn, a rise of this magnitude would make me rather nervous as an investor.  

There’s also the issue of product differentiation. While selling pizzas is admittedly nothing new, Franco Manca’s low-price sourdough recipes have been generating huge amounts of positive feedback. In contrast,Wetherspoon fails to offer anything that visitors would struggle to get elsewhere. 

With barely any earnings growth now expected in 2018, I think most investors would do well to avoid the shares for now.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Paul Summers owns shares in Fulham Shore. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.