The Marston’s share price has jumped! Should I buy the stock?

Over the past 30 days, the Marston’s (LON: MARS) share price has jumped in value by more than 15%. This has helped the stock regain some of its losses over the past year. Since the middle of February 2020, the stock is down 13%. 

After this performance, shares in the pubs and restaurants operator are well on the way to recovering the majority of the losses suffered in 2021. As such, I’m wondering if it’s worth buying the shares today ahead of future gains. 

The outlook for the Marston’s share price 

Past performance should never be used as a guide to future potential. Just because shares in the hospitality/leisure operator have recovered some losses over the past few weeks, doesn’t mean the stock will continue to trend higher. Another wave of bad news could cause the Marston’s share price to plunge once again. 

Whenever I consider an investment for my portfolio, the first thing I do is try to understand why the stock has acted in the way it has over the previous 12 months.

With Marston’s, it’s pretty straightforward. Since March last year, rolling lockdowns have decimated the company’s revenues. The firm’s 2020 financial year revenues fell to £821m from £1.2bn in the prior period. The group lost a staggering £400m in its latest financial year, including impairment charges. For some comparison, the organisation’s current market capitalisation is £588m. 

These losses raised some serious questions about the group’s financial position. Analysts began to speculate whether the business could remain solvent and outlast the pandemic. 

Two things have changed in the past few months that have altered this view. First of all, the group received a buyout offer from US private equity firm Platinum Equity Advisors. The potential acquirer offered a price of 88p, followed by 95p, and then a final bid of 105p. Management rejected all of these attempts. However, I think they showed other investors believe there’s value in the Marston’s share price. 

The other factor that implies the company’s outlook has improved over the past six months is the completion of a transformational agreement with Carlsberg. This provided an immediate cash infusion of £233m. As well as bank facilities of £176m, the group now has plenty of cash to meet estimated outgoings of £3m-£4m per week in a full lockdown. 

Recovery play

All the above suggests to me the outlook for the Marston’s share price has improved dramatically over the past six months. Unfortunately, the company isn’t out of the woods just yet. Its future depends on the government’s ability to control the pandemic, which is totally out of its control. That makes the business difficult for me to value. 

Therefore, while the leisure group could be an excellent way to play the economic recovery over the next few years, I’m not going to buy the stock today. I feel there’s just too much uncertainty surrounding its future and there may be other companies (with more substantial balance sheets) better placed to capitalise on reopening trade.