One FTSE 100 stock with explosive potential

JD Sports shares haven’t been on a great run recently. This Fool details why he thinks this FTSE 100 stock is still a great buy for his portfolio.

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It might seem like the stock market hasn’t got much to offer investors these days. As I’m writing this, the FTSE 100 has returned less than 1% in the last year. This is understandable considering the rapid rise of interest rates. Putting my money in a savings account may seem more sensible.

However, I think I’ve found a FTSE 100 stock that could deliver me market-beating returns in the long-run.

Background

JD Sports Fashion (LSE: JD) is a retailer that focuses on trainers and sportswear. It sells items from big-name brands, such as Nike and Adidas, but also sells its own brands.

It has been very successful with expansion, having a dominant presence in Europe. In 2016, it expanded into Asia, and most recently it has completed deals in the Middle East to continue its overseas expansion.

However, what really appeals to me is the growing trend of health and fitness. This has become especially prevalent after the pandemic, with more people wanting to exercise after being indoors for so long.

In order to do this, people need the right sportswear apparel and trainers. JD Sports is in a prime position to provide these and thus grow this market.

Cost-of-living pressures

However, although the sportswear market is growing, inflation is remaining stubbornly high. This has put massive pressure on consumers to rein in their costs. As a result, a pair of new sports trainers may not be their top priority when making purchasing decisions.

Due to these macroeconomic issues, if I purchase JD Sports shares, I may be exposed to short-term volatility.

This becomes apparent after looking at the performance of its shares over the last six months, as they have fallen by over 15%.

However, I believe this is completely unjustified. In an economy where many companies are struggling to sustain their comparative revenue figures, JD Sports actually grew its revenue by 22% year on year (yoy) in the last quarter.

Furthermore, even if JD Sports starts to suffer unexpectedly due to the economic state, it has an excellent cash position with £1.58bn on its balance sheet. This would allow it to weather any storm that heads its way.

Too cheap to ignore

JD Sports shares are currently trading at a forward price-to-earnings ratio (P/E) of 10.6. While this is only slightly cheaper than the FTSE 100, which has a P/E of 11.3, they currently look undervalued considering the revenue growth the company is continuing to experience.

Now what

JD Sports is a company with a consistent track record of growth and expansion. Investors have previously been rewarded for holding its shares, earning a return of over 1,300% over the last 10 years.

Recently this hasn’t been the case, and there might be some short-term volatility in the share price as a result. However, I’m an investor who is focused on the long-run return of an investment. Looking past these immediate issues, I see a company that is continuing to grow despite the economic state.

Therefore, I see the potential for JD Sports to return to explosive growth, especially when the economy stabilises. If I had the spare cash to do so, I’d buy its shares today.

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.

Muhammad Cheema 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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