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Why has the JD Wetherspoon share price jumped?

Two women friends sightseeing in summer while on vacation.
Two women friends sightseeing in summer while on vacation.

There has not been much reason to raise a glass lately for shareholders in JD Wetherspoon (LSE: JDW) such as myself. Pubs have faced a difficult trading environment. The JD Wetherspoon share price has halved in the past year.

However, as I write this, the shares are up 12% in this morning’s trading. Does this suggest they might be turning the corner – and could now be the time to increase my stake?

Results give glimmers of hope

The jump follows the release this morning of the pub landlord’s preliminary results. But at first blush, it might be hard to see why these would cause the share price to rise.

The company opened the results by comparing the figures to its pre-pandemic 2019 prelims. Compared to then and before exceptional items, like-for-like sales fell. So did revenue. So did operating profit. So did free cash flow. The company made a loss in the first six months of the year and there will be no dividend paid, compared to a 12p per share payout back in 2019.

So why have the shares risen? I think it is because the battered JD Wetherspoon share price already had so many dismal expectations priced in that the results themselves were a reminder of the business potential. After all, the company made an operating profit and generated free cash flow. After exceptional items, it also recorded a profit.

I think the operating profit and free cash flow are a welcome sign that the business is rebuilding. It has faced and continues to experience considerable challenges, from energy inflation to staff availability. The fact it has turned an operating profit provides a foundation for improved results in future, I hope.

Strong prospects

In fact, it is those prospects that give me pause to consider whether now might be the time to increase my holding of Spoons shares. If I had spare to money to invest, I would buy more shares for my portfolio even after today’s jump in the JD Wetherspoon share price.

I think the underlying business model is strong and proven. The company has built a loyal customer base that I think gives it a competitive advantage against rival pub chains like Mitchells & Butlers.

Clearly, as the results show, the pub trade is experiencing a perfect storm of challenges. Unfortunately, I expect that to mean that some pubs will fold. Spoons itself has earmarked several dozen of its own pubs for sale. But by focusing on the company’s core strengths and maintaining its historical focus on costs, I think JD Wetherspoon could end up in a stronger position than it entered the pandemic.

Can the share price recover?

Although I would be happy to buy more Spoons shares today, I expect its business recovery to take years and there may be bumps along the road. That could dog the short-term JD Wetherspoon share price.

As a long-term investor though, that does not bother me. I hope the business model, competitive advantage and proven ability as an efficient operator will see it recover in coming years.

I see the current share price as a bargain for my portfolio. If I had spare cash to invest, I would put in another order at my stockbroker — and at the bar!

The post Why has the JD Wetherspoon share price jumped? appeared first on The Motley Fool UK.

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C Ruane has positions in JD Wetherspoon. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2022