Image source: Getty Images
JD Sports (LSE: JD) shares are like a sprinter who’s lost their way. They’ve been moving at terrific speed, but in the wrong direction. The sports/athleisure wear retailer’s share price has plunged almost 43% over the last year, and trades at levels not seen since 2018.
Once one of the UK’s most exciting growth stories, the FTSE 100 business has stumbled. That follows two disappointing Christmas trading periods, prompting profit downgrades and tariff concerns. It also has to compete with rivals that are discounting heavily.
Former hero
It’s also been hit by the problems affecting key partner Nike, whose own shares are down almost 20% in the last year, and more than 40% over five. Are we seeing a move away from trainers generally? Unlikely. It may be that people — young and old — simply don’t have the cash right now or have plenty of choice available to them elsewhere
Wednesday’s half-year results failed to ignite the stock, even though the board said it remains track to meet full-year guidance despite the tough environment.
Sales jumped 18% to £5.9bn. Organic growth in North America —JD’s biggest market — rose 3.1% to £2.3bn, and in Europe by 6% to £1.9bn. The UK softened though.
Group pre-tax profits fell to £351m from £406m. CEO Régis Schultz said the results demonstrate JD’s “resilience”, but markets clearly hoped for more. Basically, this looks like a pretty decent company hit by wider economic woes. It’s not exactly drowning in debt either, which stands it just £125m, before lease liabilities.
Dirt cheap valuation
The JD Sports share price looks ridiculously cheap, trading on a price-to-earnings ratio of 7.2. That gives it a cushion against further disappointments.
My big concern is that the shares could take time to recover given the downbeat state of the UK and US economies. And if artificial intelligence (AI) does destroy many entry level jobs, as some fear, young people would have even less money to spend on trainers and the like.
Over the past three months, the JD Sports share price has climbed 23.46%. That would have turned a £10,000 stake into around £12,346. Now that’s a tidy gain over a short period. Personally, I’m still sitting on a 10% paper loss, but that’s an improvement from 25% just a few months ago.
Patience pays off
JD Sports may never be the growth monster it once was. I believe it will stage a recovery at some point, but it requires patience. Sadly, the trading dividend yield of 1.15% doesn’t offer much reward while we wait. Although the recent £100 million share buyback was a positive sign.
I still think investors might consider buying shares in JD Sports, provided they’re ready for volatility and can wait for the company to regain its former spark. My concern is that the board’s waiting for events beyond its control to swing back in its favour. If that happens, the shares could finally start pointing the right way. They might even recover at speed. We just don’t know when. More patience is required.
