The FTSE 250‘s up an impressive 9.3% over the last month. Yet some individual FTSE 250 stocks have done even better. One that’s caught my eye has rocketed 31% over the same period. When I did some more research, it doesn’t appear this is just a flash in the pan. Here’s what I’m talking about.
Strong gains
JD Wetherspoon is (LSE:JDW) the index hero. It’s one of the UK’s largest pub operators, running over 900 of them as well as a handful of hotels. It makes money from a high-volume, low-margin sales approach. I think we all know the cheap and cheerful nature of Wetherspoons, but it certainly is an effective business model.
The rapid pop in the stock price can partly be attributed to an unexpectedly strong trading update. The group reported a 5.6% like-for-like sales increase in the 13 weeks to the end of April, up from 4.8% in its previous half-year. At the same time, management pressed ahead with its share-buyback programme, giving investors confidence that cash flow isn’t a problem.
Chairman Tim Martin was quick to note that “recent trading has been helped by favourable weather.” Yet even with this, the company “anticipates a reasonable outcome for the financial year”.
Looking ahead
I think the outlook’s very positive for the company. It’s reliant on the UK economy doing well, or at least people feeling more optimistic about their personal finances. Last week, the Bank of England cut interest rates again. It looks to me like another cut will happen later this summer. This should help stimulate economic growth as people have less incentive to save versus spend.
Further, the stock’s still down 6% over the past year. This isn’t a growth stock that’s shooting to overvalued levels. The price-to-earnings ratio sits at 14.90, which is about average. So I’m not concerned about the risk of a sharp correction as investors all rush to bank profits.
It has momentum right at the key point of the year heading into summer. It’s poised to benefit further if summer months bring robust pub-going.
Tax woes
One risk is the recent hike on employers tax. The business flags that this increase, along with wage pressures, will come to an additional £1.2m a week. That’s a chunky expense for any company to have to factor in. I don’t see any reversals from the government on this strategy, so the business might have to look to raise prices in order to fully offset this impact.
Even with this concern, I believe the firm’s well positioned to take advantage of the rest of this year. We might have to wait until the next trading update to get confirmation of this, but I think it’s a strong contender for any investor to consider for their portfolio right now.
