This popular UK stock is up 31% in a month! Should I join the party?

Jon Smith explains the reasons why a well-known UK stock has been outperforming recently, along with his outlook for 2023.

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Across the FTSE 100, no stock has performed better in the past month than JD Sports Fashion (LSE:JD). Up 31% over this period yet down 19% in the past year, it has shot up thanks to a strong Q4 and better risk sentiment. But with it still a long way from the highs of 2022, there could be a lot more upside for this UK stock in 2023.

Reasons to be positive

Last Wednesday, the business released a statement for the Q4 and Christmas trading period. In the six weeks to the end of the year, sales rose by more than 20% on the same period in 2021. In the broader 22 weeks to the end of the year, revenue jumped by over 10%.

This is a surprisingly good performance for two main reasons. Revenue in 2021 already set a high watermark, given the rebound in spending towards the end of the year following lockdowns. Further, analysts have been talking about the dismal UK economy and the impact of the cost-of-living crisis for months. In line with that, many would have expected revenue for JD Sports to fall as people cut back on spending.

Growth in North America was also commented on. The 134 stores might only be a small proportion of its 3,300 stores globally, but it’s a growing presence and one that the company is investing in for this year onward. This initiative should help the business to accelerate to the next level. It should also help JD Sports to be less reliant on the UK business.

A UK stock that hasn’t always been in fashion

Reading the above, it doesn’t come as a huge surprise that the stock has jumped recently. Yet even though it has been a popular stock with retail investors for years, the performance hasn’t always been this good.

After hitting levels above 200p back in Q3 2021, the share price halved in value in 2022. It was trading below 100p as recently as last October. Interim profits fell, with concern around supply chain issues and high inflation. It also had to battle with the negative press around the departure of executive chairman Peter Cowgill in May, along with CFO Neil Greenhalgh announcing his departure in October.

I do think that a key risk for this year is the stability of the senior management team. These leaders set the tone for the performance and strategy of the company. When people come and go, this vision can be lost quickly.

Getting ready to buy

In the short term, I think the hype around this growth stock is high. I want to be careful not suffer at the hands of speculative traders who could sell in coming weeks to bank the profit. This could cause a dip in the price. Therefore, JD Sports is a stock I want to buy, but I’m going to wait for a slight pullback in the share price before investing.

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 assessed. Consider taking independent financial advice.

Jon Smith has no position in any of 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.

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