In the dynamic world of the FTSE 100, the past year has brought both highs and lows for various stocks. Among them, 39 companies saw a decline in their value, while 61 experienced growth. The overall index has surged by a notable 10%, surpassing the five-year average of 6.2%.
However, not all companies have fared well in this volatile market. One notable casualty has been Frasers (LSE:FRAS), a sports retailer facing a turbulent period. At the start of the year, its shares were valued at 910p, but as of December 13, the price has plummeted to 620p, marking a significant 32% decline within a short span of 12 months.
The downfall escalated on December 5 when Frasers revised its adjusted profit before tax forecast for the fiscal year ending in April 2025 (FY25) to a range of £550m to £600m, down from the initial projection of £575m-£625m. This news triggered a 10.7% drop in the company’s share value. The culprit, according to Frasers, was the diminished consumer confidence post-budget, coupled with additional expenses of £50m in FY26 due to government decisions.
Despite this downward spiral, Frasers surprisingly stands as the twelfth-best performer on the FTSE 100 over a five-year period.
Pros and Cons
On the bright side, Frasers’ current share prices present an enticing bargain. Even with conservative estimates for FY25, the earnings per share would be 91.6p, resulting in a forward price-to-earnings ratio of only 6.9. If the company manages to reach the upper end of its projection, the ratio would further decrease to 6, indicating an undervalued position. In contrast, the average ratio for clothing and footwear retailers stands at 17.8, making Frasers an attractive prospect for value investors.
However, several risks lurk in the shadows. The company’s share price tends to be volatile, partly due to the substantial 73.3% stake still held by Mike Ashley, the firm’s founder. This dominance limits the available shares for other investors, magnifying the impact of significant trades on the stock price. Additionally, Frasers’ diverse interests in other listed businesses raise concerns about potential distractions and uncertain takeover plans, casting a shadow of ambiguity over its management strategies.
Looking ahead, the holiday season will be a crucial period for Frasers’ performance. The company’s recent profit warning following the half-year report release indicates that its festive trading outcomes could sway its future direction, prompting caution among stakeholders.
Final Thoughts
Despite the tempting value proposition, I remain cautious about the timing of any investment in Frasers. As a shareholder in JD Sports Fashion, a close competitor in the same sector, I’m mindful of the risk of overexposure to a single industry. With both companies’ stock prices reflecting contrasting trajectories, I opt to observe from the sidelines for now, allowing the market dynamics to play out before making any decisive moves.
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