When the pandemic struck, many FTSE stocks operating in the hospitality sector suffered. I decided to stay away from them.
With restrictions seemingly a thing of the past as the world learns to live with Covid-19, I want to revisit some of these stocks. One I’m currently considering is Fuller Smith & Turner (LSE:FSTA). Should I buy the shares?
Pubs and hotels operator
As a quick introduction, Fuller is an operator of pubs and hotels in the UK. It operates via two segments which are Managed Pubs and Hotels, and Tenanted Inns. It manages and runs the former, while the latter is run by third parties under tenancy and lease agreements.
So what’s happening with Fuller shares currently? Well, as I write, they’re trading for 620p. At this time last year, the stock was trading for 823p, which is a 24% decline over a 12-month period. I believe Fuller shares have come under pressure due to macroeconomic factors, like many other FTSE stocks.
To buy or not to buy
So what are the pros and cons of buying Fuller shares for my holdings?
FOR: Fuller released full-year results in June for the year ending 31 March 2022. These results were positive and showed signs of life post-pandemic. Firstly, revenue increased from £73.2m in 2021, to £253.8m. Reopening helped this massively. Fuller also turned a profit in 2022, compared to a loss in 2021. Furthermore, it reinstated its dividend in 2022, which it had cut in 2021 to conserve cash. Finally, it wiped a chunk of debt off its balance sheet. Although trading has not reached pre-pandemic levels, I am buoyed by this resurgence, which could be the start of recovery and growth.
AGAINST: As noted above, macroeconomic headwinds could impact Fuller’s progress. Soaring inflation, the rising cost of materials, and the supply chain crisis could affect performance and investor returns. Rising costs could impact profit levels, which would in turn affect returns. Supply chain issues could also affect operations, which could affect performance levels as well.
FOR: The passive income from dividends is a major positive. At current levels, the dividend yield stands at 1.8%. This is a decent return for an AIM stock and close to the FTSE 250 average of under 2%. I am aware that dividends can be cancelled at any time, however.
AGAINST: At current levels, Fuller shares look expensive to me on a price-to-earnings ratio of 54. This makes me wonder if longer-term growth is already priced in. I will keep an eye on future updates, developments, and share price activity.
A FTSE stock I would buy
I must admit I am buoyed by Fuller’s recent update as well as the passive income opportunity. It could leverage positive performance into long-term growth too. With this in mind, I would be willing to add some shares to my holdings. I will keep an eye on the impact of macroeconomic issues, however.