This month I bought a FTSE 250 share I think has excellent prospects.
In fact though, this was not a first purchase for me. I already owned the share. I decided to put some more money into the company because I continue to think the share price offers me great value.
Common high street sight
The share is J D Wetherspoon (LSE: JDW). Spoons is a well-known chain of cheap pubs. But at a time when dozens of its British rivals are closing monthly, why would I want to invest in the sector?
The thing is, although pub numbers are declining and will likely continue to do so, I expect considerable ongoing demand. In a shrinking market, being a leading operator can actually be advantageous. Weaker competitors may struggle to survive while proven operators can pick up new customers as other businesses close their doors.
As a familiar name across the land, I think Wetherspoon has a lot going for it. Its business model of attractive prices on drinks and food has won it a loyal following. It has proven over decades that it is able to turn a profit even while offering low prices.
The pandemic dented its performance but it has since returned to form.
This month, the FTSE 250 firm said that like-for-like sales in the first 14 weeks of its current financial year were almost 10% up on last year’s performance in the same period. It expects full-year performance to meet market expectations.
Possible bargain buy
But while a pint at Spoons may be cheap, what about the shares? After all, they have jumped by 56% already this year.
Despite that surge, I continue to think there is potential value in the current J D Wetherspoon share price. The shares remain 38% lower than they were five years ago.
But while profits are lower now than then due to things like higher product costs and wage bills, I think the company has been strengthened not weakened by the challenges it faced during the pandemic and government-imposed lockdowns.
Net debt has fallen below the pre-pandemic level. The company has developed its digital ordering and payment systems. It has also got an even keener focus on cost management.
Another round, please
The current market capitalisation of the company stands at under a billion pounds.
In 2019, it turned a post-tax profit of £73m. I believe that, over time, the chain can do even better than it did back then. On that basis, I see it as a bargain FTSE 250 share. That is why I have been buying more.
Cost inflation remains a risk. I also think the business faces other risks, such as fewer young people drinking, damaging long-term revenue growth prospects.
But I still reckon the shares look like a bargain and so this month have been putting my money where my mouth is!
