There’s a lot to think about when looking for shares to buy. Dividends, growth prospects, and valuations are all things I’m interested in. One thing however, matters the most and it’s the first thing I look for . However, if I can’t find it, I’m straight on to the next thing.
What is it?
For any stock I’m thinking about buying, I look to complete the following sentence:
“Company X can sell things for more than they make them for because…”
Here are some candidate answers:
- Nobody else is allowed to make those things.
- It can make them for less than everyone else.
- Changing to another supplier is difficult for customers.
There are others. But I need a potential investment to have at least one way of finishing that sentence. Call it a moat, call it an unfair advantage, call it whatever you like, but it’s the number one thing I look for in a stock to buy.
Why does this matter?
Making money is about selling stuff for more than it costs you to produce it. But there has to be a reason why a company can do this.
If there isn’t, sooner or later, someone else will start selling it for less. And that creates a problem. As a result, a company needs to be able to stop this happening. Furthermore, whatever it uses needs to be durable.
A stock trading at a price-to-earnings (P/E) ratio of 14 doesn’t make enough to give buyers their money back next year. It’s going to take time. That means it needs to make money year after year. And that’s why it needs a durable advantage over its rivals.
Cost advantage
One company that I think does have this is JD Wetherspoon (LSE:JDW). Its big advantage is that it has lower costs than competitors.
That means it can make money while selling things at lower prices. And this comes from its ability to buy at scale.
Matching this is virtually impossible for other operators. Wetherspoon’s edge comes from buying at scale across 794 pubs. That’s over twice as many as rivals Fuller, Smith, & Turner (380) and almost three times as many as Young & Co’s (280). So the advantage is likely to be a durable one.
Margins
The hospitality industry as a whole has been under pressure. Energy prices are up, staff costs are rising, and taxes are higher.
Wetherspoon has looked to hold down prices and use sales growth to offset lower margins. But this hasn’t been entirely successful. Profits in 2025 were lower, despite higher sales. By contrast, other operators have managed to maintain margins with price increases.
In the short term, ”Spoons’ has faltered. But from a long-term perspective, this might be playing into the firm’s hands. The company’s big attraction is the value it offers consumers. And as competitors push prices higher, that only gets wider.
To buy or not to buy?
There’s no question JD Wetherspoon operates in an extremely tough industry. And that’s enough to put a lot of investors off.
I completely understand that view. But every time a competitor increases prices, the firm’s competitive position gets stronger.
The stock is already a big part of my portfolio. Despite this, it’s still on the list of investments I’m considering adding to at the moment.
Should you invest £5,000 in J D Wetherspoon Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if J D Wetherspoon Plc made the list?
Stephen Wright owns shares in JD Wetherspoon.
