This FTSE 100 share has smashed the index for five years but most private investors won’t touch it. Despite making people rich, it’s still cheap. Mention the billionaire owners’ name, and people wince. Why is everybody so down on this super growth stock?
The company in question is Mike Ashley’s retail vehicle Frasers Group (LSE: FRAS), which pretty much explains everything. People take a dim view of Ashley, but he’s making investors fortunes.
It’s all very unsporting
Ashley is notorious for his spell owning Newcastle United, while MPs once accused him of running Sports Direct like a “Victorian workhouse”. Many in the City view him unfavourably too. Yet that’s not the only reason why Frasers has been overlooked. It operates in the bricks and mortar retail sector that’s been at the sharp end of three hugely damaging trends: e-commerce, pandemic lockdowns and the cost-of-living crisis.
But while rivals stumble, Frasers has rocketed. If I’d invested £5,000 three years ago I’d have £13,665 today, with the stock up 173.28%. Only British Gas owner Centrica has done better over the same timescale, growing 185.96% over three years.
Rival JD Sports Fashion is far more popular among investors but over three years it’s down 26% and is up just 8.93% over one year.
Despite that, Frasers is one of the five least traded stocks on the FTSE 100. That’s partly – but not wholly – down to the fact that Ashley owns 70% of the company.
Frasers Group, which owns a host of high street brands including Sports Direct, Flannels and House of Fraser, returned to the FTSE 100 last September after dropping out in 2016. It’s been a remarkable recovery. That’s been built both on hoovering up distressed operators in the troubled retail sector, including Missguided, Sofa.com and House of Fraser,as well as “elevating” and expanding chains like Sports Direct and Flannels.
Ashley’s acquisition spree always looked incredibly risky but so far it has paid off and there’s no sign of it stopping. Lately, the £3.7bn group has acquired small stakes in ASOS, Currys and Boohoo Group, and a 21% share of AO World.
Last month, it reported a 96.9% increase in pre-tax profit to £660.7m, with revenue up 15.8% to £5.6bn, led by sports retail. Yet the share price has gone off the boil, falling 10.89% in the past 12 months. Is this a buying opportunity?
It’s got big ambitions
This high-flying stock certainly looks good value as it trades at a modest 11.3 times earnings, despite its rampant growth. It’s in a tough sector and margins slipped last year, but only by 90 basis points from 43.5% to 42.6%.
Naturally, e-commerce remains a massive challenge. As does the decline of the high street. There’s no dividend. Once Frasers Group has run out of trouble companies to buy, it may struggle to grow.
Today’s share price is just over £8. If the group’s CEO, Ashley’s son-in-law Michael Murray, can lift that to £15 by October 2025 he gets a cool £100m. That’s some incentive.
People love to hate Ashley. Personally, I’d love to hold Frasers Group. I’ll buy its shares when I have cash to invest.
