I’d buy this cheap FTSE 100 stock while it’s on sale at 135p

Here’s a FTSE 100 stock that has fallen by nearly a quarter over the last 12 months. I think the selling is overdone and I’d buy today.

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JD Sports Fashion (LSE: JD) is a FTSE 100 stock that I think has been overly punished in recent months.

It started the year at 165p and now trades for 135p. That’s an 18% drop versus a year-to-date gain of 3% for the Footsie.

Zooming further out, the shares are down 23% over a year and 41% since reaching an all-time high of 233p in late 2021.

Longer term, however, the stock has still been a massive winner. It has turned every £1 invested 20 years ago into £65 (not including dividends). Or £500 into more than £32,000.

While those gains are very unlikely to be repeated, I still think the shares could get back to winning ways.

Dark clouds

The issue that has been weighing on the stock is the same one facing nearly all retailers, both large and small. That is, weak consumer spending due to high inflation and interest rates.

Athleisure giants Nike and Adidas have been reporting lower demand and overstocked stores, particularly in the US. Shares of rival Foot Locker have fallen more than 30% over the past year.

In early January, JD itself released a profit warning, saying that it had missed expectations in H2 due to milder autumn weather and heavy seasonal discounting.

It lowered its adjusted pre-tax profit guidance from £1.04bn to £915m-£935m for the 53 weeks to 3 February.

A summer of sport

However, in a recent trading update, JD said it still managed to outperform the wider sportswear market in its last financial year. Like-for-like sales grew 4.2% year on year at constant exchange rates, while organic growth was 8.4%.

Total sales came in at £10.5bn and it opened 215 new JD stores during the year.

We anticipate trading conditions will improve as we move through the year [FY25], helped by a busy sporting summer, softer comparatives with last year from Q2 and an improving product pipeline towards the end of the year.

JD Sports, FY24 trading update

The sporting summer is indeed busy, with both the Paris Olympics and Euro 2024 taking place. Major sporting events like these often boost sales of sports clothing and related merchandise.

Indeed, England are joint-favourites with France to win the Euros, so I’d imagine JD will flog quite a few England tops this summer. And Scotland also qualified and has a new kit out.

Great value

Another positive I’d highlight here is a recent shift in strategy at Nike, one of JD’s closest partners.

John Donahoe, CEO of the sportwear giant, said on its latest earnings call: “We must lean in with our wholesale partners to elevate our brand and grow the total marketplace.”

He also confirmed that Nike would increase investment in its wholesale channel, which is good news for JD.

Despite the tricky trading conditions, which remain a key risk, brokers still see revenue reaching £11.3bn this financial year. Then £12.3bn next year. They also forecast operating profits of £1bn then £1.2bn, respectively.

So the long-term growth story still appears strong here. And assuming these earnings forecasts prove correct, we’re looking at low price-to-earnings multiples of 10.4 and 9.

To my eye, this growth stock looks like it’s on sale at 135p. I’d snap it up if I had cash to invest.

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.

Ben McPoland has positions in Nike. The Motley Fool UK has recommended Nike. 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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