It’s been a dreadful start to 2024 for investors holding JD Sports Fashion (LSE: JD) shares. Just two and a half weeks in, we’re looking at a 35% share price drop. Ouch!
But similar to when JD Sports has a sale on, some investors will be drawn to the stock, hoping to bag a bargain.
One it would seem is the company’s own chief executive, Régis Schultz, who has just scooped up a load of shares.
Should I follow suit and invest in this fallen FTSE 100 stock? Let’s take a look.
Why this matters
Yesterday (16 January), Schultz bought 91,321 shares at an average price of 108.42p. That means he paid £99,006, and increased his ownership to 3.7m shares, or a 0.1% stake.
Personally, I love to see management increasing their skin in the game because it aligns their interests with those of shareholders.
Plus, it suggests they think the firm’s prospects for growth and profitability – which ultimately drive share prices higher – remain strong. Therefore, this is generally well received by the market, at least in the short term.
We can see evidence of this today as JD Sports stock is up marginally on an otherwise terrible day for the FTSE 100 (down 1.64%).
For context, JD shares were changing hands for 174p just before Christmas.
Profit warning
The stock sold off when the sportswear giant delivered a profit warning on 4 January. It said its second-half trading had so far missed expectations due to milder autumn weather and heavy industry discounting over the holiday season.
As a result, the firm now expects adjusted pre-tax profit for the 12 months to 3 February to be £915m-£935m. That’s down from its previous guidance of £1bn.
On the festive period, management said: “We elected not to discount, especially online. So, in the UK we saw more of a sales impact than a margin impact and overall organic sales were slightly negative.”
This is an important point. The firm decided not to discount in the UK, so took a hit on sales but not so much profit margins. I’d be more worried if it had elected to discount and sales had also been weak.
It did participate in promotional activity in the US and Europe, but sales held up well there. Elsewhere, Asia Pacific continued to deliver double-digit growth.
Would I invest?
Clearly, these are tough times for consumers and therefore retailers. With interest rates high (at least by recent standards) across much of the world, there’s a risk things could get worse.
However, this is surely already reflected in the stock’s low valuation. It’s trading on a forward-looking price-to-earnings (P/E) ratio of just eight. That’s dirt cheap for a quality growth stock, and is even below the FTSE 100’s average P/E of 11.
The company continues to grow its global store count and has a valuable strategic partnership with Nike. So I suspect this period will prove to be a temporary blip.
As such, I’d be buying alongside the CEO if I had spare cash to invest today.
That said, £99,000 is a bit much for me to put into a single stock. I’d rather build a full portfolio of top FTSE 100 stocks with that type of sum!
