Tighter restrictions mean that pubs will now close in the highest-risk areas. Nobody knows how long these restrictions will last. Likewise, with Covid cases escalating rapidly in most of Europe, companies that rely on travel look set for a prolonged bout of misery. There are now very few places abroad that UK citizens can travel to freely.

While this undoubtedly affects a great many companies, Wetherspoon and Carnival could be impacted immediately. If I held either of these two FTSE 250 shares, I reckon I’d sell out now and invest in something that would help me sleep a bit better at night.

Last orders

Wetherspoon was quick to reopen after the initial lockdown closed all of its pubs back in March. By the end of August, more than 95% of its pubs had reopened. But not even Rishi Sunak’s Eat Out to Help Out scheme was enough to maintain revenues at last year’s levels. From the beginning of July to mid-August, like-for-like sales were 17% below the prior year.

Following lengthy pub closures and the erosion of profit margins, the company expects to make a loss for this year. That’s not exactly surprising. But Wetherspoon’s shares still look overpriced, in my opinion. The shares trade at 16 times last year’s earnings, a period that was unaffected by Covid. That wouldn’t be cheap in a normal year. New restrictions mean the group will remain unprofitable for longer and will take longer to recover. In my mind, that’s still not reflected in the Wetherspoon share price.

Carnival shares have further to sink

Carnival has been more affected by Covid than most, with its cruise business effectively shut down for six months. Only in the last month has the company resumed a very small number of its cruises. This is reflected in its financial performance. In the nine months to the end of August, the group made a whopping net loss of over £6bn, with revenue down 67% from the year before.

A deteriorating Covid outlook has forced the group to cancel the majority of its cruises until next spring. It still has £6bn in cash, but a monthly cash burn of over £500m means that might not last long. What’s more, the group has borrowed so much just to survive the next year that repayments are going to eat into profits for the foreseeable future. It owes £5bn in repayments in 2023 alone. The Carnival share price has already fallen over 70% this year, but I think it’s got further to fall yet.

Holding Wetherspoon or Carnival shares isn’t just about whether the companies will survive the next year or two. It’s also about what the travel and hospitality sectors will look like in a few year’s time. I have no doubt that the hospitality sector will eventually recover. But I do have doubts about what the cruise industry will look like in the future. For a good night’s sleep, I think it’s best to sell shares in these companies now. There are so many better companies to invest in.

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The supermarket’s chief executive Mike Coupe has been prominent among the UK’s big retail bosses in warning that a no-deal Brexit and trading under World Trade Organisation terms would increase food prices, cause significant disruption, and could put national food security at risk.

Meanwhile, Wetherspoon’s Brixiteer boss Tim Martin has lauded the prospect of a clean break from the EU and free trade, on the grounds it would reduce shop and food prices and be good for his customers.

Whatever the ultimate terms of the final divorce decree and economic repercussions, I’m convinced Sainsbury’s is a stock to avoid, while I’d happily buy Wetherspoon’s shares today, and hold them for the long term. Here’s why.

Ominous

Sainsbury’s has been struggling for a good number of years now. I was unconvinced by its acquisition of Argos in 2016. This upped its exposure to discretionary consumer spending which, from an investment perspective, is not really what I want from a defensive sector like food.

Its announcement last year of an agreed merger with Asda was more promising in this respect. However, as I warned readers, there was a chance the competition regulator would block it, and that even if it did go ahead, I would view it as fraught with execution risk. It now looks like the merger is unlikely to happen.

Recent news flow around Sainsbury’s has been ominous. Kantar Worldpanel’s regular grocery market survey showed its sales falling 1% over the 12 weeks to 24 February, while Tesco, Asda and Morrisons saw rises of 1.3%, 1% and 0.8%, respectively. Sainsbury’s launched a discount across its TU clothing range last month, followed by a massive sale this week across its homewares brand, Habitat.

At a current share price of 227.5p, Sainsbury’s price-to-earnings (P/E) ratio is 11.2 and its dividend yield is 4.5%. I view this as unattractive for a struggling business, with no clear route to being a sector winner.

Premium worth paying

In today’s half-year results, Wetherspoon reported a 7.1% rise in total sales for the six months ended 27 January, including a like-for-like increase of 6.3%. Growth has accelerated in the six weeks to 10 March, with total sales up 10.9% and like-for-like sales up 9.6%.

However, margins are under pressure from increased staff pay and other costs. As a result, first-half pre-tax profit declined 18.9%. The company reiterated its previous guidance that costs in the second half of the year will be higher than those of the same period last year, and that it “anticipates an unchanged trading outcome for the current financial year.”

The market took today’s news in its stride, with the shares currently trading little changed from yesterday at around 1,300p. This puts the company on a P/E of 17.1, and with its routinely small dividend giving a yield of just 0.9%.

However, I believe the premium rating is worth paying because I view Wetherspoon’s position in the value pub market as akin to Primark’s in budget clothing — a clear ‘category killer’, in the words of one City analyst. As such, I expect it to be a long-term winner.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.

The firm’s share price fell after Brexit-backing boss Tim Martin warned that rising wage costs wouldn’t yet be passed on to customers through higher prices. As a result, profits are expected to be slightly lower than those achieved last year.

What’s changed?

Less than two months ago, Martin said that like-for-like sales growth of 4% in 2018/19 would be enough “to match last year’s record profits.” The firm’s first-quarter trading has exceeded this threshold, with like-for-like sales up by 5.5%.

I assume that the company’s decision to increase wages this week was made before the publication of its full-year results on 14 September. So today’s revised guidance suggests to me that market conditions are proving to be tougher than expected. I can see two possible reasons for this.

One is that operating costs are rising faster than expected. The other is that tougher competition from rivals means that Martin doesn’t think he can push through price increases without losing sales.

In either case, the end result may be that Wetherspoon’s profit margins come under pressure this year.

Good company, but is the price right?

As a Spoons customer, my experience is that most of the firm’s pubs are well run with friendly staff, cheap drinks and a decent budget menu. As my colleague Graham Chester explains, the firm’s distinctive offering makes it a potential “category killer”.

From a financial point of view, free cash flow has been consistently strong and margins have been stable in recent years. A return on capital employed of 10.5% is higher than many rivals. Although net debt is higher than I’d like to see, it’s similar to rivals and should be manageable.

However, my estimates suggest that the stock trades on a forecast P/E of about 15.5 after today’s news, with a forward yield of 1%. I’m not sure this is cheap enough to reflect the risk of falling profits. I plan to stay on the sidelines for now.

Cruising to a profit

One company whose profits are unlikely to be affected by rising UK wages is the world’s largest cruise ship operator, Carnival (LSE: CCL). As cruise regulars will know, most ship operators recruit low-paid hospitality staff from emerging markets, keeping costs low.

The Carnival business — which owns brands including Cunard, P&O, Princess Cruises, and Holland America — has seen considerable growth over the last five years. Annual profits have risen from $1.1bn in 2013, to $2.6bn in 2017.

Rising demand for cruise holidays shows no sign of slowing. Although I can see a risk that the number of new cruise ships being launched each year will eventually leave the market saturated, I don’t think we’ve reached that point yet.

Analysts expect Carnival’s earnings to rise by 10%, to $4.24 per share this year. That puts the stock on a forecast P/E of 12.9 with a dividend yield of 3.4%. In my view this could be a good entry level for an investment in this market-leading business.

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As has become customary, Brexiteer boss Tim Martin introduced today’s report with a forthright argument that a no-deal Brexit would reduce shop and pub prices and be good for his customers, and the UK generally. However, City analysts are as divided on the prospects for Wetherspoons as the population is on the merits of withdrawal from the EU. According to financial data website Digital Look, five analysts rate the stock a ‘buy’ and five a ‘sell’, with only two taking a neutral position.

My view is that whatever the outcome and short-term effects of Brexit, Wetherspoons will deal with it and continue to thrive over the long term. Indeed, it’s a stock I’d happily buy and hold for the next 25 years.

Force of nature

Prospective investors would do well to take a look at the table of annual summary accounts since the incorporation of Wetherspoons in 1983. The table is in today’s results and is accompanied by a note that since the company’s flotation in 1992, EPS has increased by an average of 15.4% a year and free cash flow per share by an average of 15.5%.

This is a terrific long-term performance and, as the company has said, it’s been driven not by ‘big ideas’ or grand strategies, but simply by a focus on improving as many areas of the business as possible on a week-to-week basis. As a result of its relentless focus on price leadership and customer satisfaction, Spoons has become a veritable force of nature in the value pub market — a clear ‘category killer’, as one analyst has put it.

Good value for an outstanding business

Today’s results showed revenue of £1.7bn for its financial year ended 29 July, 2% ahead of last year. Profit before tax and exceptional items rose 4.3% to £107.2m and EPS advanced 14.5% to 79.2p. At a current share price of 1,250p, the price-to-earnings (P/E) ratio is 15.8, which I consider good value for an outstanding business.

The board maintained the annual dividend at 12p, as it has for a good number of years. The low payout ratio (just 15% of EPS) and yield of less than 1% mean Wetherspoons isn’t a stock for investors seeking a high income. Capital growth is the name of the game here, with share buybacks resulting in buy-and-hold investors owning an increasingly large percentage of an increasingly valuable business. For example, purely because of buybacks, the chairman’s stake in the company has increased from 21.2% to 31.9% over the last 12 years.

Looking ahead, following 5% growth in like-for-like sales for the year to July, the company said this had advanced to 5.5% for the six weeks to 9 September. It reckons it needs about 4% for the current year to match last year’s record profits. With management having a habit of under-promising and over-delivering, fiscal 2019 is already shaping up to be another record year. And I’m expecting many more over the coming decades.

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G A Chester has no position in any of the shares mentioned. 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.

Today I’m looking at the investment case for Wetherspoons and considering my favoured alternative, Greene King. Which should you choose as the weather starts to warm up?

Social media shutdown

Brexit-backing Wetherspoon’s chairman Tim Martin is an outspoken founder-boss of the type that’s increasingly rare at big-cap companies. His latest headline-grabbing move is to announce that the firm will close all of its social media accounts.

Commenting on the decision, Martin said: “I don’t believe that closing these accounts will affect our business whatsoever.” I’m inclined to agree with him. The group’s brand and offering are widely known and understood. Exiting social media won’t change that.

The right time to buy?

Not everyone likes Wetherspoon pubs. But the firm’s financial results over the years suggest that Martin and his team are very good at what they do.

Operating profit has risen from £91.5m in 2013 to £128.5m in 2017. The group’s recent half-year results showed that this measure of profit rose by 13.6% to £74m during the six months to 28 January.

Despite facing rising costs, the operating margin has remained stable, at between 7% and 8%. Cash generation has also remained strong.

Wetherspoon’s pub estate is no longer expanding. Spending is now focused on buying the freeholds of leased sites and refurbishing existing sites. This should help to deliver long-term financial benefits, although it’s causing a short-term rise in debt.

Although I’d like to see borrowing fall, I think the firm’s gearing is still in an acceptable range. And while the group’s 1% dividend yield doesn’t appeal to me, forecast earnings growth of 5% this year suggests to me that the shares could continue to outperform.

Brewing a turnaround

When Greene King issued a 49-week trading statement on 12 April, the company’s shares started climbing. They’ve not yet stopped and are now worth nearly 25% more than they were one week ago.

Is it too late to buy into this turnaround? I don’t think so, as trading appears to be stabilising.

Although like-for-like sales fell by 1.8% during the 49 weeks to 8 April, some of this was due to poor weather over the last 12 weeks. Easter saw a marked improvement, with like-for-like sales up by 2.8% compared to the same period last year.

There’s more to come

Greene King still faces some challenges. In my view it’s too soon to say whether sales have returned to sustained growth. And as with Wetherspoon, the group’s net debt is slightly higher than I’d like to see.

However, management confirmed last week that plans to cut costs by £40m-£45m were “on track”. Proceeds from the sale of unwanted pubs are “likely to be ahead of expectations” and the company has continued to spend money on keeping its pubs updated.

Greene King’s valuation still looks undemanding to me. The shares trade on 8.8 times 2017/18 forecast earnings, and with a prospective yield of 5.9%. I’d keep buying after last week’s news.

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Another strong set of figures

Few companies have outperformed expectations more regularly than J D Wetherspoon (LSE: JDW). The stock has risen by 45% over the last year alone, as Brexit-backing founder Tim Martin has continued to steer the pub chain successfully through worsening market conditions.

Today’s first-quarter trading statement is no exception. The group’s like-for-like sales rose by 6.1% compared to the same period last year. Management reported an underlying operating margin of 8.6% for the first quarter, significantly better than the equivalent figure of 7.7% reported for last year.

To improve its performance, the chain is pruning underperforming pubs. Six pubs have been sold since the start of August, while two new sites have opened, out of a total of 10-15 planned for the year.

This process should help to protect the company’s cash flow and margins. That’s important, as I believe the biggest risk facing equity investors is the group’s debt burden. This is currently running at 3.5 times earnings before interest, tax, depreciation and amortisation (EBITDA).

The firm says it is targeting a more conservative range of zero to two times EBITDA over the long term, but Mr Martin says he is happy with the current level of borrowing, given the low interest rate environment.

Time for another round?

Broker forecasts for 2017/18 put Wetherspoon’s stock on a forecast P/E of 19, with a prospective yield of just 1%.

The shares look cheaper when measured against free cash flow, which was 97p per share last year. That implies a price/free cash flow ratio of 12.9, which is very reasonable.

I don’t have the nerve to invest in Wetherspoon at current levels, but I’d certainly continue to hold if I owned the stock.

Even more outrageous

Back in 2015, the founders and management of online trading firm Plus500 Ltd (LSE: PLUS) were ready to accept a takeover bid of 400p per share.

A regulatory investigation led to the failure of this bid, and the company has continued as a standalone business. This hasn’t stopped it delivering runaway growth. Plus500 stock recently hit an all-time high of 1,050p, after the group advised investors to expect full-year results “ahead of expectations”.

Earnings have kept pace with the share price, and the stock still only trades on nine times 2017 forecast earnings of 112p per share. A total dividend of 67.6p is expected this year, giving a tempting yield of 6.7%.

Not without risk

I have to admit that I don’t understand why Plus500 is so much more profitable than its rivals.

I’m also concerned that the group’s performance metrics seem to imply that many of its customers are only active for a short time. That suggests to me that the group could be hit by planned tighter restrictions on leverage for inexperienced traders, who are generally net losers.

However, these new rules remain in the future and may not be as severe as expected. For now, Plus500’s cash generation provides ample support for its valuation and dividend. It probably makes sense to take some profits, but I wouldn’t sell just yet.

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Roland Head has no position in any of the shares mentioned. 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.

Shares in Renewi (LSE: RWI) trekked higher in Thursday trade following a positive reception to first-quarter financials, the waste-to-product specialist trading 4% higher on the day.

The firm — known as Shanks Group prior to February’s merger with the Netherlands’ Van Gansewinkel — said it “has started the new financial year strongly and is trading ahead of our expectations,” with synergies from the tie-up currently “progressing well.”

It said its Commercial Division continued to “perform strongly” during April-June, particularly in the Netherlands, and that volumes and profits continued to grow. It added that stronger recyclate prices and higher market volumes are helping it to expand margins, while the pricing of core contract renewals is also improving thanks to reduced market capacity in a number of waste disposal segments.

Elsewhere, Renewi said that its Hazardous Waste Division had started the year well, while its Monostreams Division had traded in line with expectations.

Upgrades in store?

The City was already upbeat on the Milton Keynes firm’s earnings prospects prior to this week’s release. Forecasts suggested a 10% uptick in the current period. And the bottom line was expected to really tear higher in fiscal 2019 — a 65% rise was anticipated by the number crunchers.

But these figures are likely to receive meaty earnings upgrades should, as I fully expect, Renewi’s top line momentum continues and synergies run ahead of plan.

So while a current forward P/E ratio of 20.7 times may appear a little toppy, this isn’t so bad when one considers the likelihood of positive analyst revisions. And this reading slips to an appetising 12.6 times for next year.

Goes down well

Pub operator JD Wetherspoon (LSE: JDW) is another stock the calculator bashers expect to keep earnings on an upward trajectory.

The Watford-based business continues to defy those predicting a slump in takings as the British economy cools. Just yesterday it announced that like-for-like sales rose 5.3% during the 11 weeks to July 9, accelerating from the 3.3% increase punched in the first six months of the year.

With the tills continuing to ring, City brokers are predicting a 23% increase in the year to July 2017. And like Renewi, I reckon Wetherspoons could be in line for upgraded profits forecasts sooner rather than later, boosting the marginal earnings increase currently predicted for fiscal 2018.

Besides, current forecasts already leave the company dealing on undemanding P/E ratios of 17.1 times and 17 times for 2017 and 2018 respectively.

Wetherspoons has repeated its assertion that it requires like-for-like revenues growth of 3% and 4% next year to keep profits at this year’s expected levels. And I believe such sales expansion is quite possible despite the probability that the UK economy could remain under the cosh. Wetherspoons’ position at the ‘value’ end of the market protecting it from the worst of Britons’ falling spending power.

In addition to this, I reckon the huge amounts Wetherspoons has invested in its pub estate — the company has invested £65m in the current year alone on improving staff rooms, kitchen, gardens and IT systems — should also help it to continue outperforming the broader market.

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Rising inflation, slowing wage growth and the shadow of Brexit are beginning to hit consumer confidence and spending. Should investors turn their backs on companies whose profits tend to be hit the hardest in times like these? Not necessarily.

The Real Deal?

As as a holder of stock in restaurant owner Fulham Shore (LSE: FUL) I was heartened by today’s final results and the market’s reaction to them. 

Thanks to a raft of new openings (13 Franco Manca pizzerias and three The Real Greek restaurants), total group revenue grew by just over 41% to £41.3m over the last year. Group Headline EBITDA rose 36% to £7.1m with operating profit rocketing 153% to £1.3m from £500,000 just one year ago. 

Of course, expanding any business costs money so it comes as no surprise that net debt levels at the company have also increased 80% to £5.9m. Nevertheless, I’m comforted by the company’s strategy to expand at a reasonable rather than breakneck pace by waiting for “the right sites with the right rents“. This also feels prudent given the recent increase in food costs, reduction in the availability of skilled European restaurant staff and the possibility of ongoing terrorist activity impacting on the number of tourists visiting London (where the vast majority of the company’s sites are).

At first glance, shares in Fulham Shore look rather expensive at 28 times earnings. However, a price-to-earnings growth (PEG) ratio of under one suggests that new investors would still be getting great value for money. There’s no dividend on offer but that’s to be expected.

With a 38% rise in earnings now expected in 2018, I also think Fulham Shore might be a better buy than pub giant JD Wetherspoon (LSE: JDW), which issued a trading statement this morning.

Rising debts

A beneficiary of the recent warm weather, total and like-for-like sales at the Watford-based business rose by 3.6% and 5.3% respectively in the 11 weeks to 9 July. This compares favourably to the numbers for the year to date (total sales up 1.9%, like-for-like sales up 3.9%).  

Trouble is, I struggle to be convinced that its stock — on a valuation of 17 times earnings — looks good value for a number of reasons.

First, the huge estate of over 900 pubs will always be a burden. Indeed, the company expects capital expenditure to hit around £65m this year as a result of renovation work at some of its older sites. Tellingly, it has already indicated that this level of expenditure will continue or be slightly higher “for the next few years“. With just over 50 restaurants to its name, a more nimble operator like Fulham Shore looks far more appealing in this respect.

Despite stating that it “remains in a sound financial position“, Wetherspoon’s net debt levels have also been steadily rising over the last five years, from £463m in 2012 to today’s figure of around £715m. When you consider that the company is only valued at just under £1.1bn, a rise of this magnitude would make me rather nervous as an investor.  

There’s also the issue of product differentiation. While selling pizzas is admittedly nothing new, Franco Manca’s low-price sourdough recipes have been generating huge amounts of positive feedback. In contrast,Wetherspoon fails to offer anything that visitors would struggle to get elsewhere. 

With barely any earnings growth now expected in 2018, I think most investors would do well to avoid the shares for now.

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Paul Summers owns shares in Fulham Shore. 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.

This cautious outlook took the shine off a pretty strong set of interim results. Like-for-like sales rose by 3.3% during the 26 weeks to 22 January, while Wetherspoon’s adjusted pre-tax profit was 42.8% higher at £51.4m.

Earnings per share for the period rose by 51.6% to 33.8p, suggesting that the firm should easily be able to hit full-year forecasts of 55.5p per share.

Has Wetherspoon peaked?

The outlook for further growth seems uncertain to me. According to the firm, total sales fell by 0.2% during the six weeks to 5 March, while like-for-like sales growth slowed to 2.7%.

Wetherspoon is no longer expanding, either. Twenty-three pubs were sold or closed during the first half, while only two were opened. The group’s pub estate has fallen from 951 in July 2015, to 906 today.

Debt is another concern. Wetherspoon’s net debt-to-EBITDA ratio was 3.46 times at the end of the first half. That’s a historic high for the group, which acknowledged in 2016 that debt levels in recent years “have clearly involved significant risk”.

Wetherspoon shares have risen by 130% over the last five years and currently trade on a forecast P/E of 17. Earnings per share are only expected to grow by 2.5% in 2017/18. In my view, the upside and downside risks are evenly balanced for this stock.

On this basis, I’d rate Wetherspoon as a hold. But were I a long-term shareholder, I’d probably want to sell some of my shares to lock-in a profit.

You could have your cake and eat it

Posh cake shop owner Patisserie Holdings (LSE: CAKE) has definitely not reached maturity. The group, whose Patisserie Valerie brand accounts for about 70% of sales, opened 21 new stores last year, taking its total to 184. Another 20 new branches are targeted for this year.

For investors, this is a simple and impressive story to understand. Unlike Wetherspoon, Patisserie Holdings has no debt. All store openings are funded from operating cash flow, with an average payback period of 23 months.

This allows the group to fund its own expansion, with impressive financial results. Patisserie Holdings generated an impressive return on capital employed (ROCE) figure of 21% last year.

ROCE is useful because it measures the profit that’s generated relative to the money invested in a business. Companies with high ROCE can usually fund growth without borrowing. This is generally less risky than debt-funded expansion but also offers another advantage. When Patisserie Holdings’ expansion starts to slow, cash flow currently used for opening new stores should be available for increased dividends and share buybacks, boosting shareholder returns.

The firm’s earnings are expected to rise by about 16% this year and by a similar amount in 2017/18. This puts Patisserie Holdings’ stock on a forecast P/E of 20, falling to 17.5 in 2017/18. There’s a dividend yield of about 1.1% and the potential for significant growth. I’d definitely continue to hold at current levels, and would consider buying.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Patisserie Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Pub chain J D Wetherspoon (LSE: JDW) said this morning that like-for-like sales rose by 3.4% during the six months to 15 January. However, the group’s total sales only rose by 1.6%, reflecting the net closure of 19 pubs so far this year.

I’ve previously questioned the outlook for Wetherspoon, criticising the group’s high debt levels and falling profit margins. Today’s update suggests I may have been wrong. While debt remains a concern for me, margins have actually improved this year. Wetherspoon expects to report an adjusted operating margin of 8% for the first half of the year, up from 6.3% for the same period last year.

Is Wetherspoon a buy?

Not so fast. The group still faces some challenges. In today’s statement, outspoken founder Tim Martin warned that costs are expected to be “significantly higher” during the second half of the year. Wages are expected to rise by 4% on an annualised basis, while the group also expects to pay an extra £7m in business rates, plus £2m for the Apprenticeship Levy.

Alongside this, Mr Martin warned that the company expects “like-for-like sales will be lower in the next six months”. However, the group’s strong performance during the first half means that “a slightly improved trading outcome” is expected for the full year.

The shares rose by about 2% during the first hour of trading this morning. I estimate that earnings per share are expected to rise by 9%-10% this year, putting the stock on a forecast P/E of about 17.

That’s a solid performance, but debt and inflationary pressures remain valid concerns in my opinion, and the dividend yield of 1.3% isn’t especially tempting.

Overall, I’d rate Wetherspoon a hold.

Continuous improvement

I’ve seen Wetherspoon referred to as the nation’s canteen. If that’s the case, then high street baker Greggs (LSE: GRG) is fast becoming the nation’s snack bar. The group’s like-for-like sales rose by 4.2% last year, thanks mainly to the rapid sales growth of Greggs’ food-to-go offerings.

Its success has exceeded expectations in recent years. The firm’s sales growth is well known. But you may not be so familiar with the underlying financial quality of this business. This company consistently generates attractive levels of free cash flow and has maintained a net cash position for at least six years, despite investing in expansion.

Since 2011, I estimate that Greggs has returned about £161m of surplus cash to shareholders in the form of dividends. That’s about 16% of the group’s current market value.

Over the same period, the firm’s shares have risen by 115%. That’s double the 58% return provided by the FTSE 250 over the same period.

Should you buy Greggs?

City consensus forecasts suggest that Greggs’ earnings per share will rise by 6.3% to 62.3p this year. This puts the stock on a forecast P/E of 16, with a prospective yield of 3.2%. This seems a fair price for a proven performer. I’d be happy to buy and hold at these levels.

The post After 3.4% sales growth, was I wrong to doubt JD Wetherspoon plc? appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.