Stock of the day 02/03/2016 – JD Wetherspoon PLC

Like one of its regulars exiting the pub after a heavy night out Wetherspoons has spent the last few months falling to the ground only to pick itself back up again to have another go.

Can the pub chain avoid another fall when it reveals its half year figures next Friday?

A sharp decline at the start of September (thanks to warnings over the ‘living wage’) was soon overcome by Wetherspoons, which reached £7.76 by the start of November, just above where it was 2 months earlier. Yet, as it has done time and against in the past year or so, the company soon wiped away this good will with its November update. Tumbling 7% in the immediate aftermath Wetherspoons warned that its full year profits would suffer due to ‘increased labour costs’, a 2.4% jump in first quarter like-for-like sales and a 6.1% rise in total sales (both figures bumped up by the Rugby World Cup) countered by a squeezed margin, which fell by 1.5% to 6.2%.


(Source: IT-Finance.com 02/03/2016)

Yet just like it did after its September shock the stock picked itself up from its 23-month intraday low of £6.82, dusted itself off and reached a 2015 closing price of £7.51 by the end of the year. Not that this lasted for long, the market turmoil at the start of 2016 taking Wetherspoons back to £6.76 by the middle of January.

Whilst that start of the year fall had nothing to do with Wetherspoons itself, the stock’s near 10% plunge on the 20th January certainly did. Issuing yet another warning about its full year profit expectations, stating that they would be at the lower end of expectations due to the continued effects of increased hourly wages for its workers, Wetherspoons fell to an intraday low of £5.89, a level not seen since the start of May 2013. Once again it was falling margins that hurt the company, a 1.1% drop to 6.3% for the first 6 months of the year overshadowing the 6.1% rise in total sales for the same period.

However, in what is a familiar pattern for Wetherspoons, the stock soon bounced back, climbing all the way to a current trading price of £7.15 (IT-Finance.com, 02/03/2016), ignoring much of February’s volatility in the process. There is a chance the company’s rise could continue post-half year figures next week; since profit expectations are pretty low (to put it mildly) any positive surprise may be taken as a huge bonus, especially since investors seem incredibly willing to lift Wetherspoons up whenever they are given the chance.

JD Wetherspoon PLC has a consensus rating of ‘Hold’ with an average price target of £6.65.