If I had invested £5,000 in this hated FTSE 100 stock 3 years ago, here's what I'd have now
This FTSE 100 stock has broken the index for five years, but most private investors won't touch it. Despite people getting rich, it's still cheap. Mention the name of the billionaire owners and people wince. Why is everyone so down on this super growth event?The company in question is the retail vehicle of Mike Ashley's Frasers Group (LSE: FRAS ), which pretty much explains it all. People take a dim view of Ashley, but she's making investors a fortune.
Ashley is notorious for owning Newcastle United, while MPs once accused him of running Sports Direct as a "Victorian workhouse". Many in the city also view him unfavorably. But that's not the only reason Frasers has been overlooked. It operates in the brick-and-mortar retail sector, which has been at the sharp end of three very damaging trends: e-commerce, pandemic lockdowns and the cost-of-living crisis.
But while rivals have stumbled, Frasers has skyrocketed. If I had invested £5,000 three years ago, I would have £13,665 today, with the stock up 173.28%. Only UK gas owner Centrica has done better over the same time frame, up 185.96% over three years.
Rival JD Sports Fashion is much more popular with investors, but has fallen 26% over three years and is up just 8.93% in one year. Despite this, Frasers is one of the five least traded stocks in the FTSE 100. This is partly – but not entirely – down to Ashley owning 70% of the company.
Frasers Group, which owns a number of high-end brands including Sports Direct, Flannels and House of Fraser, returned to the FTSE 100 last September after dropping out in 2016. It has been a remarkable recovery. It was built both to vacuum up distressed operators in the troubled retail sector, including Missguided, Sofa.com and House of Fraser, and to 'lift' and expand chains such as Sports Direct and Flannels.
Ashley's acquisition spree has always looked incredibly risky, but so far it's paid off and there's no sign of it stopping. More recently, the £3.7bn group has acquired small stakes in ASOS, Currys and Boohoo Group and a 21% stake in AO World. Last month it reported a 96.9% rise in pre-tax profits to £660.7m, with sales up 15.8% to £5.6bn, led by sports retail. Still, the stock price has come to a boil, falling 10.89% over the past 12 months. Is this a buying opportunity?
He has big ambitions
This fast-growing stock certainly looks like a good value as it trades at a modest 11.3x earnings despite its runaway growth. It is in a difficult sector and margins fell last year, but only by 90 basis points from 43.5% to 42.6%.Of course, e-commerce remains a huge challenge. As is the decline of the high street. There is no dividend. Once Frasers Group runs out of troubled companies to buy, it may struggle to grow.
The share price today is just over £8. If the group's chief executive, Ashley's son-in-law Michael Murray, can raise that to £15 by October 2025, he will receive a cool £100m. That's some incentive. People love to hate Ashley. Personally, I would like to hold Frasers Group. I will buy his stock when I have cash to invest.
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Harvey Jones has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks listed. The opinions expressed about the companies mentioned in this article are the opinions of the author 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 does
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