Down 23% in a year, is Frasers Group a FTSE 250 bargain?

I like a cut price share within the FTSE 250 as a lot as the following investor.

After tumbling 23% in a 12 months, retailer Frasers Group (LSE: FRAS) now sells on a price-to-earnings ratio of simply 9.

That sounds pretty low cost, so ought to I purchase?

Robust enterprise, robust economics

I’ve some reservations as quickly as I hear of a ‘low cost’ British retailer as a result of I’ve been burnt so many occasions earlier than.

Retail is a really aggressive business and even well-known manufacturers with massive buyer bases can out of the blue run into difficulties because of issues like altering buyer tastes and misjudging seasonal volumes when the climate adjustments.

Frasers is an odd enterprise

Frasers has a variety of retail operations and in its most up-to-date monetary 12 months reported revenues of £5.5bn. That may be a fairly large quantity for a enterprise constructed on flogging badminton rackets and trainers. Nevertheless, it was a 1% fall from the prior 12 months.

Earnings fell 21% 12 months on 12 months however nonetheless got here in at over half a billion kilos. Frasers’ internet margin was 9.2%, which is a lot better than many excessive road rivals.

However I discover Frasers Group fairly unusual.

Is it a retailer? Is it a retailer that’s attempting to construct up stakes in different retailers that might probably turn out to be long-term takeover targets? Is it an funding group attempting to snap up undervalued shares?

With its mixture of wholly owned retailers like Sports activities Direct and stakes in companies from quick style agency boohoo to luxurious purse maker Mulberry, Frasers Group strikes me as an odd mixture of retailer and activist investor.

I feel this share might be a cut price

I do suppose the present Frasers Group share worth might be a cut price.

The FSTE 250 firm is solidly worthwhile. I feel boohoo has untapped potential at its present worth (I’m a shareholder myself) and reckon the identical is true for Mulberry.

However what’s the technique in all of this?

Operating a reduction sports activities retailer is already a consuming activity. I ponder whether Frasers Group’s administration has the required time and experience to get profitably into the kind of investor activism it has carried out with its massive boohoo stake.

Shopping for worth shares and lobbying for boardroom change is a really completely different sport to piling sports activities package excessive and flogging it low cost.

I’m sticking to the Warren Buffett strategy

Frasers Group has lengthy been lower than totally understood in elements of the Metropolis. Which will assist clarify why the share worth seems like a possible cut price.

However in reality I additionally am unsure that I correctly perceive the logic of the enterprise mannequin. Frasers Group owns some sturdy manufacturers however in lots of circumstances they’re heritage manufacturers whose finest days could also be behind them within the absence of pricey advertising and marketing help.

In the meantime, shopping for shares in boohoo has to date unhappily been like attempting to catch a falling knife for me. I see that as a threat for Frasers Group too. It might find yourself proudly owning substantial stakes in weak companies as an alternative of utilizing that capital to develop its personal, confirmed retail operations.

Like Warren Buffett, I favor to stay to what I perceive once I make investments. There are some FSTE 250 firms that match that invoice however Frasers Group is just not amongst them. I can’t be investing.