Even with the FTSE 250 rallying almost 10% since the start of April, there remain plenty of dirt cheap buying opportunities. And one stock that has the pros excited right now is Frasers Group (LSE:FRAS), with one expert predicting the stock could jump 64.2% in the next 12 months alone.
Is that ambitious? Certainly, but with a price-to-earnings ratio of just 6.7 – one of the lowest in the entire FTSE 250 – it’s far from impossible.
Here’s the opportunity
As a quick introduction, Frasers Group is a global retail, real estate, and investment conglomerate. It owns multiple retail brands such as Flannels, Evans Cycles, and most notoriously, Sports Direct, as well as having a stake in others like Hugo Boss, Puma, ASOS, and Mulberry.
Today, the most optimistic share price forecast for the stock is 1,100p issued by the analyst team at Jefferies. And as previously mentioned, if this projection proves accurate, a £1,000 investment today could be worth close to £1,642 by this time next year.
So what’s behind this forecast?
3 catalysts required for success
Jefferies’ bull case stands on three distinct pillars:
- The group’s ‘Elevation Strategy’ succeeds in transitioning the product range from low-margin to high-margin premium products.
- Fraser’s portfolio of other brands (Hugo Boss, etc.) is re-rated by investors to reflect their fair value.
- Buybacks continue to support a structural recovery of Frasers’ share price.
The third pillar is already being fulfilled with Fraser’s currently executing a £70m buyback programme. It’s the first and second pillars that are a bit more challenging.
Pillar number two will require a positive shift in sentiment towards luxury goods – a market that’s currently in the midst of a cyclical downturn due to lower global consumer spending.
As for pillar number one, here management does have control and is actually showing encouraging early signs of progress. Fun fact: in the latest half-year results, retail sales growth remained modest at 5.1%, but retail profits shot up 12.2% thanks to expanding margins.
With underlying pre-tax profits on track to potentially reach as high as £600m in its 2026 fiscal year (ending in April), up from £560.2m, this FTSE 250 stock does indeed look ludicrously cheap compared to the current trajectory of earnings.
So what’s the catch?
Macro and governance concerns
Fraser’s core retail business appears to be chugging along nicely, even with strong consumer spending headwinds. But that resilience could soon be tested with both the UK Minimum Wage and higher Employer National Insurance contributions driving up the cost of labour as the company enters its 2027 fiscal year.
There’s also the question of Frasers’ founder, Mike Ashley. He holds close to 73% of the outstanding shares, giving him ultimate control. But with a history of erratic deal-making, public disputes, and using his shares as collateral for personal loans, it presents a significant governance risk that could hold Frasers’ shares back.
So where does that leave investors? Frasers is genuinely one of the cheapest stocks in the FTSE 250 right now, with the business performing far better than what its valuation implies. But buying shares will demand patience from shareholders who are comfortable tolerating the Ashley wildcard risk factor.
Personally, that’s not my cup of tea. But for other contrarian investors looking for a bargain, Frasers may be worth a closer look.
