The past few years have not been easy ones for pub operators like J D Wetherspoon (LSE: JDW). Government-mandated lockdowns during the pandemic hurt business badly. After that, some punters did not want to return to pubs, whether because of the crowds there or increasing strains on household budgets.
But business has bounced back for some pubs, with the Wetherspoons share price more than doubling since December 2022.
With a trading update today (24 January) confirming that trade continues to grow, could the shares double again?
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Long-term road to recovery
Although the shares this week reached a 52-week high, they remain below half of the price they reached in pre-pandemic December 2019.
So doubling again from the current Wetherspoons share price would simply take the company back to the sort of price tag investors attached to it before it the pandemic hurt the pub trade so badly.
Wetherspoons has been rebuilding its business over recent years. Last year’s revenues were its highest ever. Profits have not yet got back to where they were in 2019, but the firm is firmly in the black again.
Strong trading
From here, I think profits could grow over the next few years. Labour and energy costs continue to be much higher than they were before the pandemic, according to the chain. That is a drag on profits.
But the business has been growing sales. Like-for-like sales in the past 12 weeks were 11.1% higher than in the same period last year.
Partly reflecting the impact of some pub closures, revenues have grown 8.4% so far in the company’s financial year, compared to the prior year period.
Share price is a possible bargain
But while the Wetherspoons share price has jumped over the past year, so too has that of competitors such as Marston’s.
I think Wetherspoons shares could benefit from ongoing recovery in the pub trade. But I also think Spoons specifically stands to do well, thanks to the strength of its business model, as seen in the latest sales growth.
Its approach of offering a wide range of beer at low prices, alongside an extensive and competitively-priced food menu, continues to bring customers through the doors in droves and drive impressive sales growth.
The price-to-earnings ratio of 18 is not cheap. But I expect increasing sales and lower inflation to result in higher earnings in coming years. Lower consumer spending remains a risk, but it could also work to Spoons’ advantage given the company’s keen pricing.
If earnings per share increase, I think the current price could seem like a bargain. If the business keeps performing strongly, I could imagine the Wetherspoons share price getting back to where it was in 2019 in coming years.
That would mean it could more than double from where it stands today. It is not guaranteed, but I own some of the shares and plan to hold on to them.
