This FTSE 100 stock has tumbled in price. Here’s why I’d buy it now!

This FTSE 100 stock has tumbled to nearly half of its value since the start of 2022. This presents a good buying opportunity for Henry Adefope.

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FTSE 100 stock JD Sports Fashion (LSE:JD) is one of the best examples of a volatile company within the index. Its share price has tumbled to nearly half of its initial value since the beginning of 2022. That’s a steep fall in a short space of time!

On the surface, there are obvious reasons why the share price of the sports retailer has declined so heavily since the New Year.

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A financial penalty from the Competition and Markets Authority (CMA) connected to its 2019 merger with Footasylum was an unwelcome New Year’s gift in 2022. Furthermore, it is plausible to think that the higher cost of living and energy bills we have all been contending with since the turn of the year will mean less spending on non-essential retail purchases.

Both these factors could be reasons why the stock is out of favour with investors currently. However, has the sell-off been overdone? Possibly.

Could this be a bargain?

As a value investor, I like to include stocks in my portfolio that trade at a big discount to their intrinsic, fair value. Currently, analysts reckon the fair value for the stock should be around 305p (more than double the current price range it’s sitting at). A broad consensus of analysts also expects the JD Sports stock price to climb from its current low, with a consensus price target of 255p. This, combined with bullish earnings forecasts, suggests the stock could be a bargain for me right now.

In addition, its financial fundamentals demonstrate a company making operational improvements. It has bolstered its balance sheet and retained more cash since the pandemic. To top that, in a recent trading update, the company raised its annual profit outlook for 2022.

The risks

The company’s dividend yield is a stingy 0.2%, lagging the FTSE 100 average of 3.75%, and its payouts to investors relative to its share price has been declining since 2017, well before the effects of the pandemic and inflation. It is a stock that is unlikely to provide me with any meaningful income in the medium term.

Meanwhile, its price-to-earnings ratio (share price relative to its earnings per share) is around 16x, which is a higher multiple than the averages of both the FTSE 100 specialty retail sector that it belongs to, as well as the broader market index. In short, the stock may already be expensive.

Overall, JD Sports is not the only FTSE 100 specialty retailer that has taken a financial hit. In fact much of the sector has lost around of third of its value since the start of the year, with Dunelm Group, Halfords Group and Moonpig all faring similarly.  

Once cost of living pressures subside and discretionary spending returns, I believe JD Sports stock will be one of the biggest beneficiaries. The current price range looks like an attractive entry point, and is why I am strongly considering an opportunistic investment in the stock before the end of May.

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Henry Adefope has no position in the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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