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If you’d spent £3k on JD Wetherspoon stock 4 years ago, this is what you’d have today

In 2016, JD Wetherspoon (LSE: JDW) traded below 600p. If you’d bought £3,000 worth of stock back then at 600p (500 shares), you’d currently have over £8,000 as Wetherspoon shares now trade above 1,600p.

In an industry where pubs have been hit hard, with the closures of sites well-documented, Wetherspoon appears to be doing a roaring trade against the tide. But why?

Well, it benefits from economies of scale. The business is nationwide and there are very few places without a single Wetherspoon pub. It has well and truly conquered Britain, and that gives it a lot of clout. When Wetherspoon turns up looking for a new supplier, the company can be aggressive on margins because of the sheer volume it will look to order. This means cheaper prices for customers, and cheaper prices mean the business proposition is more attractive for price-conscious consumers. It’s a virtuous circle, as more customers mean the company can be even more aggressive on margins!

It caters for all times of the day   

This is a key reason for Wetherspoon’s success. Unlike many pubs, its units are open almost around the clock. It starts with breakfast, with several options for food and hot drinks, and continues through to lunch — where it runs its ‘burger and a beer’ offer. The success of this means the business has expanded it to a ‘pizza and a beer’ too, and the company has invested in its food offering to make this not only attractive on price, but attractive to eat.

Wetherspoon is also a force in the evening — with more dining offers, and a wide drinks selection. By keeping clients coming in throughout the day, and keeping them in the pub for longer, the units are collecting more revenue than some of its competitors.

Focusing on its USP: service

Wetherspoon pubs are often well-staffed meaning waiting times are minimal. This is important, because if a client experiences a long wait time then they are less likely to re-visit — and they also might spread negativity telling friends and family about their experience. 

The company has made a great stride in this area with the release of the Wetherspoon app, which allows clients to purchase orders through the app and have staff bring this to the table. This has the benefit of automating the ordering process, saving Wetherspoon employees’ time, but it also frees up space at the bar and reduces waiting time.

Stable growth

In the company’s last results, like-for-like sales were up 6.8% on the prior year in 2018. That’s good, because unless a company can grow its sales in its existing units, it will struggle to maintain growth.

Free cash flow per share also grew to 92p from 88.4p. Growth in free cash flow has consistently been a prominent feature for historic stock market winners, and so if we want to find more stocks that can increase like Wetherspoon — it makes sense to check that our investments are generating healthy and increasing levels of free cash flow. 

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Michael Taylor does not own shares in Wetherspoon. 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.