Since December 2023, this FTSE 100 stock is down 32%. Is it now too cheap to ignore?

In the last 12 months, 39 FTSE 100 stocks fell in value and 61 rose. Overall, the index increased by about 10%. This is well above the five-year average of 6.2%.

But it was not a good year The Frasers (LSE:FRAS).

At the start of 2024, the sports retailer’s shares were changing hands at 910p. At the time of writing (13 December), the company’s share price is 620p. That’s a 32% drop in just under 12 months.

The biggest blow came on 5 December, when the company announced it now expects its adjusted pre-tax profit for the year ending 27 April 2025 (FY25) to be between £550m and £600m. That is down from an earlier forecast of £575m-£625m.

Investors panicked, wiping 10.7% off the company’s value. Frasers is accused of “weak consumer confidence” following the budget and warned that we are facing more “rising costs” of £50m in FY26, thanks to the Chancellor’s plans.

However, despite this poor run, it was the twelfth top performer in the FTSE 100 in the last five years.

Good and bad

But stocks now look cheap to me.

Even at the lower end of FY25 expectations, assuming a corporate tax rate of 25%, the company’s earnings per share would be 91.6p. This means a forward price-to-earnings ratio of just 6.9.

If the company manages to reach the high end of its forecast, the number will drop to 6.

In any case, I think this is a small advantage. According to Eqvista, the average for clothing and footwear retailers is 17.8.

However, there are some risks.

We have already seen that the price of a company can fluctuate. Some of this can be explained by the large shareholding (73.3%) held by Mike Ashley, the founder of the group. This means that there are fewer shares available to other investors. So large trading can have a negative impact on stock prices.

I also wonder if the directors of the company are easily distracted. With its many interests in other listed businesses, Frasers is more like an investment holding company. Whether it intends to launch takeover bids for any of them is unclear. But the speculation certainly makes for interesting reading.

Finally, I believe that the Christmas season is important. Frasers published its half-year report on 5 December, so it is likely that the company will have a good idea of ​​how holiday trading is doing, compared to previous years. This may have contributed to its profit warning, which gives me cause for concern.

Final thoughts

But despite these concerns, I believe the shares offer good value. And the company has a proven track record of growth having increased revenue by £1.4bn (40%) over its last five financial years.

However, I don’t want to take the position yet.

That’s because I own stocks JD Sports Fashionanother sports trader of the FTSE 100. The two companies are very similar, which means I will be exposed to a lot in one sector, which is not a good idea.

And to show how closely aligned they are, JD Sports’ share price – as of December 2023 – has been the worst performer in the FTSE 100 (Frasers is third worst).

So I’ll leave this one out.