The J D Wetherspoon share price crashes 10% while the FTSE rockets! Time to buy?

After a strong run the J D Wetherspoon share price has plunged on today’s interims results. Here’s what Harvey Jones plans to do.

| More on:
Smart young brown businesswoman working from home on a laptop

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investors had high hopes for the J D Wetherspoon (LSE: JDW) share price ahead of today’s (22 March) 2024 interim report. But with the stock crashing almost 10% in early trading, they’ve clearly been dashed.

I’d been wondering whether to add the FTSE 250 pub chain to my self-invested personal pension (SIPP) plan, and I’m curious to know whether this is a warning shot or a buying opportunity.

Company results are funny things. Everything comes with a positive spin. Wetherspoons kicked off by stating that the “recovery from the effects of the pandemic continued”, with 2023 like-for-like sales up 15.3% compared to FY19, which it uses as a pre-pandemic benchmark. That compares to a drop of 17.4% in 2022.

The stock has gone flat

Today’s results cover the first half of FY24, and show total sales up 8.2% to £991m, compared to the same period in 2023. It states that since December 2015 it has slashed the number of trading pubs from 955 to 814, but total sales have nonetheless increased by a third in that time. Sales per pub have increased by an impressive 50%.

This could continue as it opens new locations and expands old ones, say, by adding beer gardens. All of which sounds like good news to me, so why is the stock falling? Especially since the rest of the FTSE is flying for the second day in a row.

While today’s growth figures look good, they’re not great. First-half margins rose from 4.1% to 6.8%, but they’re still pretty slim. Worryingly, like-for-like sales growth has slowed lately, rising just 5.8% in the seven weeks to March 17.

A long hot summer could add a bit of much-needed fizz. Plus there’s Euro 2024 to bring the punters in. Also, as inflation eases and the first interest rate cut looms, drinkers may have a little bit more money in their pockets. Falling inflation will also cut input costs, while wage growth is slowing too.

Wetherspoon reckons it has the potential for 1,000 pubs across the UK. While that’s almost 23% more than today, it does effectively set a ceiling on its expansion, which may limit future growth prospects.

I think I’ll abstain

I have two other concerns. After rising 33% in the last year, the shares look expensive, currently trading at 31.6 times earnings. I sense I’ve missed my chance to buy. Second, there’s still no dividend with the company baldly stating: “The board has not recommended the payment of an interim dividend.” 

The last time it paid a dividend was in 2019, when investors got 12p a share. So this is the fourth year in a row when shareholders get nothing. I was targeting this stock for growth rather than income. But its refusal to reward shareholders is worrying, even if the board did complete a £34.1m share buyback in 2023.

Today’s results weren’t bad. They just didn’t give investors much to get excited about. Right now, I can see most of the FTSE rocketing on hopes that interest rates will fall and we will soon be out of the woods. I’ll take my next stock pick from them, and park my interest in J D Wetherspoon.

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.

More on Investing Articles

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »

Investing Articles

The Aviva dividend yield’s already over 7%. Could it go higher?

Christopher Ruane explains why he thinks the Aviva dividend could be on course to grow this year and beyond. Might…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

2 shares I’d buy to try and double my money in 10 years

Stephen Wright thinks there are still opportunities to to buy UK shares that can double in value over the next…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

NIO stock has crashed! Here’s why I still wouldn’t touch it with a bargepole

I've been watching NIO stock falling heavily, and wondering when might be a good time to get in cheaply. Here's…

Read more »

Investing Articles

Why have Rolls-Royce shares fallen this week?

Rolls-Royce shares remain the best performing on the FTSE 100 over the past year, but there's been some pullback. Dr…

Read more »

Investing Articles

With a 4.3% yield, I consider this FTSE company an exceptional investment

Oliver Rodzianko say this FTSE company is focused on quality and long-term survival. As such, he thinks he'll hold it…

Read more »

Investing Articles

How I’d invest £10,000 in a Stocks & Shares ISA and aim for a £45,500 second income

Millions of us aren’t earning the second income we deserve. Here, Dr James Fox explains how he’d get his savings…

Read more »