Shares in JD Sports (LSE: JD) have soared by 7.5% today after the high-street retailer posted a very encouraging trading statement. Although brief, it contained a hugely positive statement, with the company reporting that it now expects that the headline pretax profit for the full year will be around 10% ahead of current market expectations of around £110m.
Clearly, this is great news for investors in the company and shows that, while the company has suffered some loss of margin from the weakness in the Euro, like-for-like sales have been better than expected and appear to be more than picking up the slack.
Looking ahead, JD is now expected to increase its pretax profit by as much as a third this year and, with the potential for more double-digit growth next year, its current price to earnings (P/E) ratio of 17 appears to represent very good value. That’s despite the company’s share price having risen by 111% in the last year and, with the UK and European economies still having the potential to deliver further improved growth numbers, JD seems to be a great buy at the present time.
Of course, JD isn’t the only fashion retailer with exceptional potential. Online rivals ASOS (LSE: ASC) and Boohoo.Com (LSE: BOO) are also top-quality businesses with a loyal customer base and expansion potential across the globe. Furthermore, they too have strong balance sheets and appear to be well-placed to deliver strong growth prospects over the medium term.
In ASOS’s case, it is expected to increase its earnings by 26% next year, while Boohoo.Com’s bottom line is forecast to rise by 42% this year and by a further 25% next year. However, where the two companies diverge in terms of their appeal as investments is with regard to their valuations. Like JD, Boohoo.Com appears to offer excellent value for money, with its shares trading on a price to earnings growth (PEG) ratio of 0.8. However, ASOS’s P/E ratio of 77 appears to be grossly high and equates to a PEG ratio of 2.5. As such, Boohoo.Com offers more growth at a better price and, with the two companies operating in a very similar space (i.e. online twentysomethings fashion), it appears to be the far better buy.
Clearly, JD has a very different business model to Boohoo.Com, with the former having a major high street presence, while the latter is essentially a pure play online operator. And, while online has clear advantages in terms of a lower cost base and benefits from a gradual transition of customers shopping online versus in-store, JD’s performance as a business is simply stunning.
Furthermore, and unlike Boohoo.Com (which has posted a fall in share price of 29% in the last year), investor sentiment in JD is very positive and, with improving results and a great valuation, it seems to be the preferred choice at the present time, although Boohoo.Com remains a great investment, too.