Over the past month, the FTSE 100 has remained largely flat. Shares of JD Sports Fashion (LSE: JD) have increased by almost 3% in the same period.
However, I believe there remains a great opportunity for me to invest in shares of this Footsie company if I had the spare cash to do so.
With the strong growth JD Sports is experiencing and expected to sustain, its shares look very cheap right now.
What JD Sports does
JD Sports specialises in the trainer and sportswear retail market. It sells its own brands. However, it recently sold 15 brands to Mike Ashley’s Frasers Group for £50m. I believe this is an indication that it will instead focus on selling items from popular brands, such as Nike and Adidas.
The global footwear and sports apparel markets are also high-growth industries. Through to 2028, the global footwear market is expected to grow at a compounded annual growth rate (CAGR) of 4.8%. This would value the industry at $134.99bn.
Likewise, the sports apparel market is expected to grow at a CAGR of 5.53% to a value of $279.2bn. Therefore, JD Sports is presented with a great opportunity to take a share of this growth.
Macroeconomic issues
However, due to global events, prices of raw materials required to make footwear and sports apparel have risen. This in turn increases costs for JD Sports. This can be seen as quarterly earnings declined by 19.3% year on year (YoY), which indicates higher costs.
Moreover, the UK is in a recession and facing a cost-of-living crisis. Many people are struggling to make ends meet, and a fancy new pair of sports trainers may be the last thing on their minds.
Therefore, JD Sports may suffer some short-term issues regarding costs and maintaining growth while the UK is in economic turmoil.
Strong growth
However, the company is still experiencing very strong growth. Quarterly revenue grew 13.7% YoY. Even though this is a steep decline from the previous quarter, sales still grew by double-digits when consumers have tough choices about how to spend their money.
Furthermore, the growth rate achieved still outpaces the growth of the broader sports apparel and footwear market. This indicates that JD Sports must be taking market share from competitors.
It is also turning its attention to growing in markets outside of Europe, expanding its presence in Asia. This should help the company maintain strong growth in the long term.
JD Sports shares are also trading in bargain territory, with a forward price-to-earnings (P/E) ratio of just 9.6. For context, the average P/E ratio of a FTSE All-Share company is 14.4.
Therefore, the strong growth JD Sports is experiencing combined with a very enticing valuation makes its shares look very attractive.
Now what?
The FTSE 100 company is trading in an industry backed by strong fundamentals. The sportswear apparel and footwear market look set to keep growing. There are some short-term concerns regarding the effects of the economy, but as a long-term investor, this doesn’t bother me.
It is currently growing revenue better than the competition, and I believe earnings will resume growth once the economy settles. Combined with a cheap valuation, I’d buy shares of JD Sports today if I had the spare cash to do so.
