The FTSE 100 is home to the largest companies on the London Stock Exchange. It’s notorious for its stability, yet that doesn’t mean every constituent is a boring, mature enterprise. In fact, over the last 15 years, there have been numerous shares that have exploded in value. One such example is JD Sports Fashion (LSE:JD.).
While a sportswear/leisurewear brand may not sound like a source of gargantuan returns, its performance since January 2009 has left many of its peers in the dust. The stock has climbed from a price of 1.83p to around 119.7p today. That’s a 6,541% return!
Those fortunate to have bought and held £15,300 worth of shares are now looking at a position worth over £1m. I think it’s fair to say these individuals are patting themselves on the back right now.
Is JD still a millionaire-making stock to buy?
At a market capitalisation of £6.2bn today, JD would have to grow to a market-cap of £405bn to replicate the returns enjoyed by investors over the last 15 years. Is that realistic? Probably not.
For reference, the largest sports fashion brand in the world today is Nike with a market-cap of $158bn (£125bn) while the luxury goods giant LVMH stands at €350bn (£302bn). So unless the company can somehow surpass these industry titans, I think it’s safe to assume that another 6,541% rise in valuation is unlikely to occur over the next decade and a half.
Organic growth continues
Typically, when an economy undergoes some stress, consumers tend to cut discretionary spending. This cyclicality is a factor almost all clothing retailers have to contend with. Yet it seems that someone forgot to tell JD Sports last year.
Looking at its 2023 interim results, organic sales growth landed at 12% as demand for the group’s premium brands remained robust. Management continues to expand its store count and the firm has recently completed its acquisition of Iberian Sports Retail Group (ISRG).
However, it’s not all been sunshine and rainbows. With less-than-ideal weather conditions in the autumn as well as worsening macroeconomic factors plaguing the sports/fashion industry as a whole, this impressive performance started to slow as the group entered the autumn trading period.
Sales are still moving in the right direction, but the company ultimately ended up cutting its full-year adjusted pre-tax profit guidance, which seems to have spooked investors. Subsequently, the FTSE 100 stock tumbled 20% on the news. But is this a buying opportunity?
Personally, I’m still on the fence. There’s no denying that JD Sports has a proven track record of defying expectations. But with industry leaders like Nike preparing for softening consumer demand, it’s possible that 2024 may be a challenging year.
Therefore, I’m keeping this business on my watchlist until a clearer picture emerges.
