​​​Will JD Wetherspoon’s Q2 trading statement give its share price a lift?

​​​Outlook on the JD Wetherspoon share price ahead of its Q2 trading update.

​​JD Wetherspoon has experienced a disconnect between its strong earnings growth of over 200% and around 70% share price gains in the past year. While the company has consistently outperformed the wider market in terms of sales growth, its share price has not reflected this improvement. Despite a significant increase in earnings per share (EPS), the valuation multiple has contracted, indicating a cooling sentiment among investors.

​There are a few factors that may explain this cautious stance. Firstly, there are concerns about the impact of high inflation on consumer spending and profit margins. Although JDW has shown resilience in sales so far, the future demand outlook remains uncertain. Input costs, particularly energy costs, have also remained elevated, adding to the concerns.

​Another factor is JDW's decision to reduce its pub estate and focus on increasing the profitability of its locations. While this strategy may lead to long-term benefits, it has required increased capital expenditure, limiting the capacity to reinstate dividends at this time.

​However, there are reasons for long-term optimism. JDW has demonstrated strong execution, with encouraging underlying sales growth driven by its penetration into younger and more family-oriented demographics. If the company can sustain this revenue momentum, profitability has the potential to recover to pre-pandemic levels. Operating margins are expected to improve, leading to over 20% growth in operating profit.

​JDW's return to cash generation has also allowed for investments in its pub estate. While there are governance concerns regarding board tenure policies, the company is making progress in terms of sustainability. As the wider industry experiences closures, JDW has the opportunity to gain market share.

​While JD Wetherspoon has performed well operationally it faces uncertainties in terms of consumer demand and cost pressures. However, if the company can maintain its earnings momentum, a re-rating of its valuation may be warranted. The execution of its strategy and effective management of inflation are key considerations for investors. Overall, JDW remains well-positioned competitively in the long term if it can maintain financial discipline.

​Analyst ratings for JD Wetherspoon

​Refinitiv data shows a consensus analyst rating of ‘hold’ for JD Wetherspoon with 2 strong buy, 2 buy and 7 hold – and a mean of estimates suggesting a long-term price target of 855 pence for the share, roughly 2% higher than the current price (as of 22 January 2024).

​Technical outlook on the JD Wetherspoon share price

​JD Wetherspoon’s share price has been capped by its 200-week simple moving average (SMA) at 849.9 pence since mid-December but nonetheless has added nearly 5% gains to its share price since the end of last year.

​JD Wetherspoon Weekly Candlestick Chart

​A rise and weekly chart close above the 200-week SMA at 849.9p would confirm a long-term bullish trend reversal and put the December 2020 low and the January 2022 high at 960.0p to 989.5p on the cards.

​JD Wetherspoon Daily Candlestick Chart

​Tuesday’s Q2 trading statement may add some volatility to the JD Wetherspoon’s share price which has been trading in an increasingly tighter sideways trading range since late-December.

​While the October-to-January uptrend line at 804.5p and the current January low at 790.0p hold, upside pressure should be maintained.

​Were the 790.0p low to be slipped through, though, the July to November highs at 753.0p to 734.5p may be revisited but would be expected to hold.