Company in the news: Majestic Wine

If you’ve ever been shopping in one of Majestic Wine’s  (Aim: MJW) stores, you can’t fail to be impressed by the range of wines and the high levels of customer service. As a potential investor, this is always a good sign. The firm had a good Christmas as people splashed out on upmarket wines.

But it seems that its customers have been laying off the booze for longer than was expected, which led to a profits warning last week and the share price tanking by 20%. Profits probably won’t grow in 2014. The bad news for shareholders is that they are unlikely to grow in 2015 either. The good news is that it’s holding on to its share of the wine market.

It is spending money to open new stores and is investing in bigger distribution facilities, as well as beefing up the internet side of its business. This is all positive for the long term. My only fear is that without growing profits in the short term, Majestic shares are probably too dear even after their slump.

At 400p they trade on nearly 15 times earnings. Although it’s a specialist retailer, you can buy shares in Sainsbury’s for less than ten times earnings. Majestic’s dividend looks safe and the 4.1% yield is reasonable. But despite liking this firm, I wouldn’t buy the shares now – 350p looks like a better entry point.

Verdict: buy if the share price falls