The top-performing stock on the FTSE 100 over the last five years may come as a surprise to many. It certainly surprised me.
It wasn’t Rolls-Royce, as I initially assumed. That’s leading the charge over one, two and three years, but had a horrible time before that. It’s down 3.02% over five, which shows how bad things got before the recovery.
Equipment rental specialist Ashtead Group has done well over five years, rising 165.62% in that time, while Flutter Entertainment is up 180.63%. Both trail the number one performer, though. Step forward Sports Direct owner Frasers Group (LSE: FRAS), which climbed a market-thrashing 207.22%.
A great growth stock
That’s hugely impressive, especially for a stock that flies under many people’s radar, including mine. Like a lot of people, I appear to have underestimated majority shareholder Mike Ashley’s business acumen. It turns out that he may have known what he was doing after all.
Personally, I thought Ashley was crazy to go shopping for bombed-out brick and mortar retail stocks, at a time when the internet was crushing the high street while the cost-of-living crisis was making shoppers feel poorer. The strategy appeared to border on the suicidal. Or egomaniacal. But there’s nothing Ashley and current Frasers CEO Michael Murray like more than defying people’s low expectations.
If I’d invested £5,000 in Frasers Group shares five years ago, I’d be sitting on £15,361 today. I wouldn’t be rubbing my hands if I’d bought it one year ago, though. The share price is up a modest 7.03% since then, turning my £5k into £5,352. Mind you, the FTSE 100 fell 3.66% over the same period.
I won’t have received any dividends, because Frasers Group doesn’t pay them. However, last Monday it did announce an £80m share buyback, purchasing 10m of its own shares by April 28 to reduce its share capital.
That’s not all Frasers has been buying. In December, it lifted its stake in troubled fast fashion group boohoo to more than 17%, then above 20% in January. We still don’t know its intentions, but with the boohoo share price crashing 89.47% in three years and 20.57% in 12 months, I suspect he finds it impossible to resist.
Direct equity
In between buying boohoo, Frasers also bought loss-making luxury fashion site Matches for £52m in cash, upping Frasers’ international exposure and adding to its luxury operations. Frasers is quite the conglomerate. As well as owning Sports Direct, House of Fraser and Flannels, it’s building up positions in ASOS, AO World, Currys, N Brown and Hugo Boss.
I missed out five years ago, so would I buy Frasers today? The shares aren’t expensive, trading at 11.66 times earnings. Markets expect 2023 revenues of £5.44bn to hit £5.8bn in 2024 and £6.12bn in 2025. That’s pretty steady.
Last October, Frasers had net debt of around £570m. Markets see that falling to £442m in 2024 then £275m the year after. Again, steady.
Once inflation is defeated and interest rates start falling, shoppers will have money to spend. Retail stocks could recover, boosting the value of Ashley’s recent bargain basement acquisitions.
I’m always wary of buying stocks after a good run, and I’ll pass on this one while I try to work out where the group’s long-term strategy is heading. I was wrong about Frasers before, and might be again.
