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In the last 12 months, 39 FTSE 100 shares have lost value and 61 have risen. Overall, the index has increased by approximately 10%. This is comfortably above the five-year average of 6.2%.
But it hasn't been a good year for phrases (LSE:FRAS).
At the start of 2024, the sports retailer's shares were trading at 910 pence. At the time of writing (December 13), the company's share price is 620 pence. That's a 32% drop in just under 12 months.
Much of the damage was done on December 5, when the company announced that it now expects its adjusted pre-tax profit for the year ending April 27, 2025 (FY25) to be between £550 million and £600 million. This was lower than a previous forecast of between £575m and £625m.
Investors got scared and lost 10.7% of the company's value. Frasers blamed “weaker consumer confidence“Following the budget and warned that it faced additional costs”incremental costs” of £50m in FY26, as a result of the Chancellor’s plans.
However, despite this poor run, it has been the 12th best performer on the FTSE 100 over the past five years.
Pros and cons
But the shares now look cheap to me.
Even at the lower end of FY25 expectations, assuming a 25% corporate tax rate, the company's earnings per share would be 91.6p. This implies a forward price-earnings ratio of just 6.9.
If the company could hit the high end of its forecast, the multiple would drop to 6.
In any scenario, I think this is a bargain. According to Eqvista, the average for clothing and footwear retailers is 17.8.
However, there are some risks.
We have already seen that the company's share price can be volatile. Part of this can be explained by the large share (73.3%) that Mike Ashley, the group's founder, still retains. This means that there are relatively few shares available to other investors. Therefore, a large trade can have a disproportionate effect on the share price.
I also wonder if the company's directors are easily distracted. With its numerous interests in other listed companies, Frasers is akin to an investment holding company. It is not clear whether it intends to launch takeover bids for any of them. But the speculation certainly makes for interesting reading.
Finally, I think the Christmas period is key. Frasers published its half-yearly report on December 5, so the company likely has a good idea of how festive trading is going compared to previous years. This likely influenced their profit warning, which worries me.
Final thoughts
But despite these concerns, I think the shares offer good value. And the company has a proven track record of growth, growing revenue by £1.4bn (40%) over its last five financial years.
However, I don't want to take any position at this time.
That's because I have shares in JD Sports Fashionanother FTSE 100 sports retailer. The two companies are too similar, meaning you would be too exposed to one sector, which is never a good idea.
And to illustrate how closely aligned they are, the JD Sports share price has, since December 2023, been the worst performer on the FTSE 100 (Frasers is third worst).
So, I'm going to leave this out.
