A brilliant way to get rich from investing in shares is to buy a penny stock that’s going places, and hold onto it for years.
I recently looked at Ashtead Group, which is the best performing FTSE 100 share of the last two decades, and was stunned to discover it had turned £5k into £2.28m over 20 years. That’s an unbelievable 41,408% total return, with dividends reinvested.
In that time, Ashtead shares jumped from 13p to £53.96p and it’s not the only FTSE 100 stock to go from pennies to investment heaven. Over the same 20-year period, the JD Sports Fashion (LSE: JD) share price soared from around 1.35p to 141.25p.
FTSE fashion flier
The multichannel retailer of branded sports- and leisurewear has delivered a total return of 12,739%, with all dividends reinvested, according to figures calculated for me by online investment platform AJ Bell. That would have turned a £5,000 investment into a staggering £641,950, and demonstrated the potential rewards of long-term investing.
JD Sports has caught the spirit of our age, as athleisure went mainstream and everybody wears trainers, with branded names like Adidas, Nike and Reebok dominating. JD has lucrative tie-ups with all of them.
Measured over a decade, it’s the best performing FTSE 100 stock of all, up 1,653% (Ashtead was second up 800%). That would have turned £5k into £82,650, which isn’t too shabby either. It’s up 15.34% over the last year, despite the cost-of-living crisis. That compares to growth of just 0.84% on the FTSE 100 as a whole. However, it’s only the 25th best performer on the index.
So much for the past. I didn’t invest in JD Sports shares when they were dirt cheap, so the only question that matters now is whether I should buy them today.
In May, management reported “soft” trading in its North American markets and given that a US recession is still on the cards, there’s a chance that could continue. Yet its UK, European and Asia Pacific businesses are holding up and it still expects full-year profit to top £1bn.
JD continues to lay the groundwork for future growth, buying French sportswear retailer Courir for €520m in May. This month, it signed its first-ever franchise deal in the Middle East, with Dubai-based GMG, and bought the rest of Iberian Sports Retail Group it didn’t already own for €500.1m.
I’d expect more of this
JD still looks cheap, despite its incredible growth, trading at just 10.3 times earnings. As a £7.31bn company, I can’t expect it to grow by another 12,739%. That would turn it into a £930bn giant. But given its international ambitions and £1.47bn of net cash, it still has plenty of room to expand.
Inevitably, there are risks. Fashion is notoriously volatile (although I don’t see the younger generation swapping their trainers for spats and suits). Big brands like Nike could drop JD to sell product direct to consumers, which would be a huge blow if it ever happened.
I’ve obviously missed out on the real share price action, but it really does seem that JD Sports has more in its locker. I’ll buy it when I have the cash, especially if the share price dips at some point.
