£5k to spend? A turnaround stock whose share price I think could explode in January!

Royston Wild runs the rule over a top leisure stock that could detonate in the days ahead.

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Buoyant risk appetite is running through financial markets following a turbulent start to 2020. The FTSE 100 is marching back through 7,600 points on signs of thawing relations between trade titans China and the US. The way things are going, it looks as if the 250-or-so points that the Footsie needs to rise to hit new record tops could be just around the corner.

Fuller, Smith & Turner (LSE: FSTA) might not be listed on Britain’s blue-chip index, though it’s one share I expect to also blast higher in the coming sessions. Not only could it gain on improving investor confidence, but the release of fresh trading numbers on January 30 could give it an added lift.

Is the share price about to bounce?

Shares in the pubs operator have remained largely range-bound during the past six weeks, finally consolidating after the heavy weakness that took it away from September’s record peaks of £12.30 per share. I’d argue that such heavy selling was unjustified given that Britons’ spending on leisure and entertainment activities, unlike that on retail goods remains strong, and that this should be reflected in Fuller, Smith & Turner’s upcoming financials.

New trading details from one of its sector rivals have certainly raised my hopes of a sunny release at the end of January. Back on the January 10, Mitchells & Butlers announced that sales have strengthened in recent months, with like-for-like revenues rising 3.5% in the 14 weeks to January 4. And it really blew the doors off over the holiday season, with underlying sales jumping 5.6% over the three-week period and total sales hitting all-time peaks on the five main festive days.

Reassuringly expensive

Fuller, Smith & Turner is no stranger to releasing solid statements of its own either. In last month’s update, the small-cap said that like-for-like sales were up a solid-if-unspectacular 2.1% in the first 36 weeks of the current fiscal year, reinforcing the notion that individuals can always find money for a pint, whatever the political and economic landscape.

City analysts expect earnings to drop 9% in the current fiscal year (to March 2020), though this is due to rises in business rates and wage costs. In fact, the Square Mile remains quite bubbly over the company’s longer-term sales picture, helped by the publican’s busy acquisition that which saw it take over Cotswold Inns & Hotels in the autumn to boost its presence in the heart of England. They predict therefore that profits will rebound 13% in fiscal 2021.

Fuller, Smith & Turner isn’t exactly cheap, its forward P/E ratio of 20.2 times flying above the benchmark of 15 that’s widely considered decent value. Though in anticipation of some robust trading numbers next week, and thus the possibility of some serious share price gains, I think the stock remains a top buy even at current prices.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Fuller Smith & Turner. 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.

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