With its share price falling 9% since the start of 2024, JD Wetherspoon (LSE:JDW) might be considered to be a value stock.
However, on 4 October, after reporting record-breaking revenue of £2.04bn for the year ended 28 July 2024 (FY24) — and an increase in adjusted earnings per share of 77%, compared to FY23 — its stock price barely moved.
It appears as though investors think the pub chain is fairly valued. Are they right? Let’s take a look.
Cheer up Tim!
After reporting such impressive growth, I thought the company’s directors would be more upbeat. Instead of celebrating the reinstatement of the dividend after an absence of six years, and growth in both revenue and earnings, I felt the press release was a little downbeat.
For example, I find it strange that in the second line of the Chairman’s statement, Tim Martin wrote: “The company continues to be concerned about the possibility of further lockdowns and about the efficacy of the government enquiry into the pandemic, which will not be concluded for several years.”
This seems like a rather gloomy statement to make so early on in his remarks.
Perhaps this explains the market’s muted response to the results — its share price closed up just 0.76%.
Politics in the boardroom
But the Wetherspoon’s Chairman has never been afraid to talk politics.
In the 2016 annual report he described how the “Brexit decision was not a protest vote — it was a grassroots rejection of groupthink and an elite’s zeal for unreal objects”. As a prominent campaigner during the referendum, he suggested that the British economy would perform far better outside the European Union.
Unfortunately, during this period the pub chain’s financial performance has deteriorated slightly.
In FY24, adjusted profit before tax was £73.9m, compared to £80.6m, in FY16. And adjusted earnings per share were lower in FY24 (46.8p) than in FY16 (48.3p). Free cash flow has also moved in the wrong direction.
Of course, Covid struck during this period and the government ordered a shutdown of the hospitality industry. It reminded everyone that you never know what’s round the corner.
Clearly, it still plays on Tim Martin’s mind.
What do I think?
Although the company’s share price has increased 12% since October 2023, Wetherspoon’s doesn’t feel like a value stock to me.
The company reckons it has the capacity to open another 1,000 pubs in the UK — it currently operates 800. However, the industry appears to be falling out of favour. Around 50 licensed premises are closing their doors each month. And over 2,000 pubs have shut in the past 20 years.
With less alcohol consumption and more people drinking at home, Britain’s pubs appear to be in decline. And the government’s Public Health Minister has hinted (subsequently denied) that they might take a look at the opening hours of the country’s boozers.
Analysts are expecting earnings per share of 52.14p for FY25.
If achieved, it would mean growth of 11%. But the company’s forward price-to-earnings ratio is currently 14, which is broadly in line with its 10-year average. This suggests the stock’s not in bargain territory.
In fact, it makes me think that the pub chain’s shares are fairly valued at the moment. I reckon there are better opportunities for me elsewhere.
