The stock market crash has hit the pub sector as hard as any. One look at the JD Wetherspoon (LSE: JDW) share price will tell you. The FTSE 250-listed pub chain is down two thirds over the last month alone, as more people keep their social distance and self-isolate at home, rather than heading for their local boozer.
Today, the JD Wetherspoon share price is up almost 30%, despite issuing a profit warning and cancelling its dividend. This market response is a sign of the crazy times we live in. Can it continue to defy the stock market crash, and should you buy it today?
This morning’s half-year report showed like-for-like sales up 3.2% in the six weeks to 8 March, and total sales rising 2.9%. The crisis then kicked in and sales fell 4.5% in the week to 15 March, with the decline accelerating this week, after prime minister Boris Johnson advised the population to avoid pubs.
Stock market crash woe
JD Wetherspoon chairman Tim Martin said while predictions are inevitably difficult right now, the group now anticipate profits “being below market expectations, so long as the current health scare continues.” So it’s impossible to provide realistic guidance on group performance in the remainder of the financial year.
The company has decided to delay most capital projects and to reduce expenditure, where possible. Meanwhile, shareholders will also bear some of the cost, as the interim dividend is cancelled.
However, Martin struck an optimistic note, saying that with the government’s proposals on business rates relief and credit guarantee facilities, “the company believes it has sufficient liquidity to maintain operations at a substantially lower level of sales.” Hence the rebound.
JD Wetherspoon share price spike
But for Covid-19, these would have been a positive set of results, with interim pre-tax profits up 15.2% to £58m, and revenues up 5% to £933m.
JD Wetherspoon isn’t quite as big a bargain as it was before today’s spike, with a forward valuation of 12 times earnings. The months ahead will be bumpy as the crisis plays out, and the next set of results will inevitably make painful reading.
However, the government is now pulling out all the stops to make sure otherwise solid companies like this don’t go to the wall (and leave a massive hole in the nation’s high streets) during the stock market crash.
Martin has criticised the government’s lockdown, suggesting it should stick to its original plan of building herd immunity. But frankly, that isn’t his call. While people are still hitting the pubs, I expect that to decline, as the number of cases rise and the death toll climbs.
One day, drinkers will be back with a vengeance though. And a raging thirst.
This is a tough time to put money into stocks like JD Wetherspoon, although that clearly isn’t deterring bargain seekers today. There’s a good case for buying the JDW share price, but I wouldn’t jump straight in after today’s resurgence.
Wait a little…
Harvey Jones has no position in any of the shares mentioned. 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.