JD Sports (LSE: JD.) shares have been a great long-term investment. Had I invested £5k in the retailer 10 years ago, that money would now be worth close to £100k.
Are the shares worth buying today? Let’s take a look.
Well-placed for success
There are a number of reasons to be bullish on JD Sports shares today, in my view.
For starters, demand for its core product, trainers, is booming. Thanks to the combination of social media, healthier lifestyles, and the casualisation of fashion, trainers are absolutely flying off the shelves right now. And I can’t see this changing anytime soon.
And JD has partnerships with all the big players including Nike, Adidas, Reebok, and New Balance. Moreover, it sells the premium gear that consumers really want. I’m talking about products like Nike’s Air Force 1 and Air Jordan. These generally aren’t available at discount retailers such as Sports Direct.
This high level of demand for trainers is reflected in JD’s rising revenue figures. Yesterday, the company posted revenue of £10.1bn for the year ended 28 January, up from £8.6bn a year earlier and £3.2bn five years ago. Note that revenue has been boosted by acquisitions though.
| Year | FY2018 | FY2019 | FY2020 | FY2021 | FY2022 | FY2023 |
| Revenue | £3.2bn | £4.7bn | £6.1bn | £6.2bn | £8.6bn | £10.1bn |
Another reason to be bullish is that the group has a clear growth strategy. Earlier this year, new CEO Régis Schultz said JD plans to open as many as 1,750 stores over the next five years. The focus will be on adding new stores in the US, France, Italy, Germany, and Spain. Management believes this can help it achieve double-digit revenue growth every year for the next five years.
Meanwhile, the company is less vulnerable to an economic downturn than might be thought. JD’s target market is consumers aged 16-24. These are typically less impacted during an economic downturn and are likely to continue buying trainers in a recession.
Our key customer target is a young adult and the young adult all over the world is benefiting from low unemployment
CEO Régis Schultz
Finally, the stock is trading at a discount to the market. Currently, JD Sports shares have a P/E ratio of about 12.4. That’s an attractive valuation, in my view.
Risks
On the downside, the shares can be volatile. JD Sports shares have a beta of 2.2. If a stock has a beta over one it means it’s more volatile than the overall market. The current reading means that if the FTSE 100 falls 10%, the stock is likely to fall more than 20%.
Another major risk is that the company could be cut out by major brands as they move to selling their products direct to consumers. Nike has already started doing this with Foot Locker. It could do something similar with JD. I think the uncertainty here is probably why the stock is so cheap.
My view on JD
Overall however, I like the risk/reward proposition at the current share price. I think the shares are worth buying today.
