I think the JD Sports share price is a bargain. Here’s why

Our writer explains why the JD Sports share price has led him to buy more for his portfolio.

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A lot of people who like moving around fast put on some footwear from JD Sports (LSE: JD) to do it. But over the past year, the only place the JD Sports share price has been going fast is downhill. It has fallen 36% in 12 months.

I think that means the current share price is a potential bargain for my portfolio. Here’s why.

Long-term growth prospects

What excites me in the stock market is not short-term trading, but the opportunities of long-term investing. If I can buy part of a business that has the opportunity to expand sales and keep growing its profits, it could turn out to be a lucrative investment.

JD is hardly a new investment idea. It has already demonstrated its growth credentials over the course of many years. Indeed, while the share price is in negative territory compared to 12 months ago, it is still 50% higher than it was five years ago. In the past decade, the JD Sports share price has grown by around 1,700%.

Looking ahead, I see a number of potential drivers for continued long-term growth. One is international expansion. The company has expanded aggressively worldwide and the US is now a major focus for its business. But there are lots of markets where it does not yet have a presence. A second driver is the continued shift to casualwear. JD has a proven business model based on selling sportswear and leisure clothing. As demand keeps growing, it should benefit.

Another growth opportunity is the potential of related businesses like gyms. Last year JD’s investment in its gyms more than quadrupled. Over time, such businesses could become significant profit centres in their own right.

JD Sports share price risks

But if the growth prospects are as good as I think, why have the shares slumped?

The company itself is modest about the growth outlook. It says that it expects this year’s performance to match last year’s, which could mean no growth at all. Risks such as inflation and supply chain costs may eat into profits. But in fact last year was already a record one for both revenues and profits. In the first four months of this year, like-for-like trading was 5% ahead of the same period a year ago.

Another factor weighing on the JD Sports share price has been concerns about its corporate governance. The abrupt departure of its executive chairman last month alarmed many investors. But the company has been focussing on improving its corporate governance, which I see as a positive thing.

Meanwhile, although inflation is a concern for JD Sports just like the whole retail trade, I see it as a bump in the road. It may eat into profits in the short term. But I do not think it undermines the long-term growth story, which is what interests me.

Looking for value

Last year JD managed a pre-tax profit of £655m. Based on the outlook it shared in its annual report, I expect the same again this year. But its market capitalisation is just £6.1bn. That looks like a bargain to me given the company’s long-term growth prospects. That is why I have been buying it for my portfolio.

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.

Christopher Ruane owns shares in JD Sports. 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.

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