After the release of a strong set of financial results today (21 September), the JD Sports Fashion (LSE:JD) share price is up almost 8%. This puts the stock at 143p. But various analysts are calling for it to head higher over the next year. Here’s why it could be a smart time to buy.
Momentum with the firm
Let’s quickly get up to speed on the results. The half-year figures showed an 8.3% increase in revenue versus the same time last year. At the bottom line, it recorded an impressive profit before tax of £375.2m. This was a 25.8% jump from the £298.3m recorded in 2022.
Growth around the world was noted. The best market was Europe (excluding the UK), which grew revenue by 27%. This was followed by America at 15% and then the UK at 8%. The CEO commented that the UK is a much more mature market, so to record even an 8% growth rate is still a positive.
Importantly, the feedback for the rest of the year was also strong. It expects earnings to be in line with current expectations, which should generate a headline profit before tax of £1.04bn.
Raising expectations
Following the release of the report, bank analysts have been updating their price forecasts. The team at Investec has put out a 300p price target, the highest I’ve seen. JP Morgan and Barclays forecast 210p.
There are several reasons these can be used to support a view of the share price hitting 200p (if not higher) over the next year.
The business has never hit a pre-tax profit of £1bn. The closest it came was in 2021 with a profit of £654.7m. So if we did get a 53% increase in this figure, it wouldn’t surprise me if the share price gained a similar amount, which would comfortably take it above 200p.
Another factor at play is the price-to-earnings (P/E) ratio. It’s currently at at 9.93, which is a fair value, in my opinion. Yet from my calculations, the earnings per share for the full-year should be double the last figure of 2.76p.
So if the share price stays the same, this would put the P/E ratio at severely undervalued territory around 5. In order for the stock to have a fair value, the share price would need to adjust and move higher to at least 200p.
It’s not all groovy
The latest report did comment that “we are acutely aware of how tough the macro-economic environment is for consumers across the world”.
This remains the largest risk in my eyes for the company going forward. If consumers have to reign in spending, then demand for the goods sold for JD Sports will fall. Although it isn’t luxury, I also wouldn’t call it basic necessities.
On balance, I’m very impressed with the trajectory the business is on. If this is maintained and the earnings back this up, I believe 200p is very achievable for the stock over the next year.
