The stock in question is the athleisure retailer JD Sports Fashion (LSE: JD). The FTSE 100 stock is up almost 8% as I write this morning. This increase follows strong half-year results.
JD Sports Fashion rises on massive profit growth
The company’s revenues grew by 53% year-on-year for the the 26 weeks ending 31 July. This is a robust number in itself, but it is the rise in pre-tax profits that looks really incredible. With a whole 778% increase, JD Sports Fashion’s profit number now stands at £356m. This shows the fast bounce back from last year’s pandemic setback. I also like that the profit rise is across its key markets that include the US and the UK.
It is also expanding fast, with acquisitions of Shoe Palace and DTLR in the US. It now has 66 stores in the market. It has also opened 21 new stores in western Europe and six in the Asia Pacific region.
This report follows its already encouraging updates a couple of months ago, reflecting a steady improvement in its performance. Its outlook is also encouraging, with the expectation that its pre-tax profit will double this year.
Is the FTSE 100 stock a buy?
I have long been positive on the stock, and even bought it shortly after last year’s stock market crash. As of today, it is the best performing stock in my portfolio. While I happened to buy it when it was ridiculously low priced, even if I had bought it much later, say a year ago, I would still have made a cool gain of over 40%.
Based on both its past share price and financial performance, outlook, and the ongoing economic recovery, I think that it could be a good stock to buy even now.
Risks ahead
However, it is not risk free. In its release today, the company talks about how the fiscal stimulus in the US, which directly put money in the hands of consumers, will be withdrawn later. This could impact its performance. Also, rising coronavirus numbers could reduce footfalls in shops again, if not send us back into lockdowns.
Also, the company’s share price has already risen a fair bit. After today’s report, its price-to-earnings (P/E) ratio is 51 times, making it among the pricier of FTSE 100 stocks. Also, while its earnings have risen, the company does not pay dividends. As an investor, I am more likely to buy stocks that offer me both capital gains and dividends, like the FTSE 100 industrial metals miners.
Over the long term, there could also be competition in the athleisure business. According to research provider Mordor Intelligence, the segment is expected to grow at an average annual rate of 5.6% between 2021 and 2026. In fact, the pandemic has increased its popularity even more. These suggest that there is room for more businesses to thrive in the segment. For this reason, I think that its continued growth cannot be taken for granted.
My takeaway
All in all, though, I think for now the prospects for JD Sports Fashion look bright and it is a good stock for me to buy for the medium term. I will buy more of it on dips.
