J D Wetherspoon shares are soaring – but still look like a bargain!

This has been a banner year so far for pub operator J D Wetherspoon (LSE: JDW). Its shares have soared 50% since the beginning of 2023. Despite that, J D Wetherspoon shares remain 15% below where they were a year ago – and around 60% down from where they began 2020, before the pandemic and government restrictions ravaged the pub trade.

In fact, despite their rise this year, I think they continue to look cheap. I have bought more in recent months. If I had spare cash to invest today, I would happily buy even more, because I think the shares are still a bargain.

Here’s why.

Valuing J D Wetherspoon shares

To figure out what Spoons shares are worth, I think one first needs a view on the long-term outlook for the pub trade. The number of pubs is falling significantly and this may continue for some time. Declining market size is a red flag.

In this case, though, I think it may actually help Spoons. The chain is a price fighter with a proven business model. I think it stands to benefit from higher-priced rivals closing their saloon doors, as patrons move their custom to Spoons.

After all, the company’s valuation also depends on how large its own revenues are, whatever the market size. These have now passed the pre-pandemic level. I think that is a sign of how well run the business is.

The crucial element, in my opinion, is how much of those revenues Spoons can turn into profits. That can be challenging for an operator that competes on price, even before adding in the current risks to profits posed by rampant inflation.

Attractive valuation

Back in 2019, the company’s net profit margin after tax was 4%. In its first-half results published last week, the figure was less than 0.1% (before allowing for certain one-off items).

That is a razor thin margin. But with revenues growing and the business gaining momentum, I think Spoons should be able to increase its margins, hopefully significantly. If full-year revenue growth matches the first-half level of 5% compared to pre-pandemic 2019 figures, and profit margins get back to where they were then, J D Wetherspoon shares currently trade on a prospective price-to-earnings ratio of 11.

I think it may take several years for profit margins to recover, but still see that valuation as highly attractive.

Risks and rewards

Of course, that presumes that things go well. The company has invested substantially in renovating its estate over the past couple of years. Growing revenues suggest that that is paying off.

The hard balancing act now is to set prices at a level that can make good profit margins without scaring away custom.

With its proven business model, strong value proposition, large customer base and strong first-half results, I believe the company can make that happen.

For a business of its quality, J D Wetherspoon shares continue to look cheap to me even after their strong performance so far in 2023.

Tags:

absolute-collagen listed on couponmatrix.ukbrittany-ferries listed on couponmatrix.ukfootasylum listed on couponmatrix.ukhobbs listed on couponmatrix.ukmaster-of-malt listed on couponmatrix.ukthe-gift-experience listed on couponmatrix.uk
absolute-collagen listed on couponmatrix.ukCollagen is key for glowing skin, healthy hair and strong nails – it’s the protein building block that supports almost every part of our body and declines naturally as we age. Absolute Collagen gives a glow in one little sachet packed with marine collagen and vitamin C. Start a subscription for delivery every two or four weeks or order a two-week supply. Either way, you’ll want to use an Absolute Collagen discount code to save on this high-quality supplement. As well as the dissolvable sachet, there’s also a topical collagen-boosting skin serum and daily hair care products.
brittany-ferries listed on couponmatrix.ukLove to travel but hate to fly? With Brittany Ferries your next holiday destination in France or Spain is closer than you think. Sail in style with your Brittany Ferries discount code with a huge number of gorgeous ships setting sail from Portsmouth, Plymouth and Poole. Whether you want to relax in an overnight cabin or take advantage of their Fast-Craft Crossings, you can reach your dream European destination without spending hours on the road thanks to Brittany Ferries.
footasylum listed on couponmatrix.ukAdd some streetwear to your wardrobe with Footasylum, the foot and clothing brand that defies traditional trends in place of daring urban styles. From cropped training tops to decade-defining footwear including UGG boots and Adidas Original trainers, we at Groupon have ways to save on a myriad of fashion staples thanks to our latest Footasylum discount codes. Sporting styles for men, women and children under its banner, there’s room for every family member to find their fashion sense at Footasylum.
hobbs listed on couponmatrix.ukThis quintessential British fashion brand has been kitting out sophisticated, stylish, British looks since the 80s, fast becoming one of the country’s best-loved clothing names. With a Hobbs discount code from us, you can kit yourself out in a sophisticated new outfit for less! Contemporary yet timeless, the Hobbs look is all about affordable luxury and garments you’ll want to wear for seasons to come. Step out in style with Hobbs.
master-of-malt listed on couponmatrix.ukIf you’re after a tasty tipple, make a beeline for Master of Malt. It’s the perfect place to find a range of delightful drinks, from fine whiskey to cocktail ingredients and everything in between! Make the most of a Master of Malt discount code to save on your next stock up. This is the perfect place to find a gift for someone who enjoys the finer things in life - spoil them with a tasting set, personalised bottle or rare find that they’re sure to enjoy.
the-gift-experience listed on couponmatrix.ukThe Gift Experience first started trading in 2003. Giving the gift of an experience is really all the rage right now and so its no small wonder that this family-run enterprise quickly expanded from selling gifts and cards to gift experiences on a much larger scale. If you find that you're a bit stuck thinking up present ideas for friends, family and colleagues, The Gift Experience can help you find the ideal present and with your gift experience discount code to hand, there's no excuse for not flashing the cash and being generous.