I don’t understand why this FTSE 250 stock’s got so cheap!

Looking at the latest balance sheet of this FTSE 250 stock, our writer’s puzzled as to why investors appear to have fallen out of love with the retail group.

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Frasers Group (LSE:FRAS) was recently demoted to the FTSE 250. Since reaching a 52-week high of 920p last June, the company’s share price has fallen 36%. This was more than enough to see it relegated to the UK’s second tier of listed companies.

Like most retailers, it didn’t fare well from the Budget in October. The employer’s National Insurance hike is expected to cost an additional £50m a year.

Even so, I’m baffled as to why the company’s market-cap’s fallen by so much. At the time of writing (15 January), its stock market valuation is £2.6bn.

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Lots of strategic investments

It’s well known that the group has an appetite for taking non-controlling stakes in other retailers. However, nobody really knows what its medium-term intentions are.

In December, it made a takeover bid for Norwegian sports retailer XXL ASA. And it wants to acquire luxury fashion label Mulberry Group. It’s also in a battle with boohoo to secure board representation. But it’s unclear what it intends to do with its other shareholdings.

In some respects, this doesn’t really matter as they have no impact on the company’s trading results. However, they do have a value.

The company last published a balance sheet dated 27 October. And this disclosed that these investments were worth £1.007bn. Since then, there’s been the usual ups and downs in the share prices of these companies. So to be prudent, let’s assume these shareholdings are now worth £950m.

This means the rest of the Frasers business is valued at £1.65bn.

Impressive earnings

And despite the additional employment costs it faces, it still expects to record an adjusted profit before tax (which excludes the movement in the value of its interests in other retailers) of £550m-£600m, during its current financial year.

PeriodAdjusted profit before tax (£m)
52 weeks to 27 April 2025550-600 (forecast)
52 weeks to 28 April 2024545
53 weeks to 30 April 2023482
Source: company reports

Using the mid-point of this range, and assuming a corporation tax rate of 25%, it means the retailing side of the business is trading on an earnings multiple of less than four. I reckon my local corner shop would command a higher premium.

Ironically, if it wasn’t for the fact that nearly 75% of the group’s shares are owned by its founder, Mike Ashley, I think it’d be a takeover target itself. Unless, of course, he wants to take the company private.

Not for me though

But despite this astonishingly low valuation, I don’t want to invest. The stock appears to have fallen out of favour with investors. The company’s recent share price performance is a far cry from September 2022-September 2024, when it increased by an impressive 155%.

Created with Highcharts 11.4.3Frasers Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL16 Jan 20208 Apr 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '252021202120222022202320232024202420252025www.fool.co.uk

As there now appear to be more buyers than sellers for the stock, I believe something significant needs to happen for sentiment to improve. And other than launching takeover bids for one (or more) of the companies in which it’s invested, I don’t know what this could be.

In addition, I have a stake in its close rival JD Sports Fashion, whose share price has also tumbled in recent weeks. I don’t want to have too much exposure to one sector.

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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.

James Beard has positions in JD Sports Fashion. 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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