JD Sports share price falls 10% on FY results. Is it too cheap to ignore?

Revenue is up, but profit is down. And on top of a poor 2024 so far, the JD Sports share price fell further as the market took in the news.

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The JD Sports Fashion (LSE: JD.) share price took a dive in early trading on 31 May, on the back of full-year results.

It’s never encouraging to see the words “challenging market” in a headline, but that’s what we got. And CEO Régis Schultz went on to say this was “particularly through our peak trading period.”

Upbeat guidance

Still, looking to the new financial year, the boss stuck with an upbeat outlook. He said: “We have started the… year with Q1 in line with our expectations in a volatile market and we are on track to deliver our profit guidance for the full year.

With the JD Sports share price down 25% since the start of 2024, I think I might see a buying opportunity here.

Revenue up

Times have been tough, particular during the peak of December. And we saw a 9% dip in adjusted earnings per share (EPS).

But JD saw revenue rise by 2.7% over the full year, even as margins were being squeezed.

I don’t think that’s a bad result at all, after the past 12 months. The year has seen the worst inflation and interest rates in most of our lifetimes.

Inflation is down now, and JD looks to me like like it’s in good shape to gain from it. That’s partly down to disposals of brands including Tessuti, Focus, and GymNation.

The way ahead

If I feel upbeat now, the City’s analysts seem to share the mood. With JD affirming its own 2024 guidance, forecasts might not need to be tweaked too much.

They predict EPS growth in the next few years that could drop the JD price-to-earnings (P/E) ratio to only 9.5 by 2026. At a time when FTSE 100 values are rising, I think that could turn out to be cheap.

One thing might keep investors away from the stock, and that’s the dividend. There is one, and it’s just been raised by 12.5%. But with a yield under 1%, it’s still tiny. And I see FTSE 100 shares on similar valuations to JD, but with good dividends on top.

Any brand-based clothing retailer is also at the mercy of fashion. But JD sells a wide range of brands. So I think it’s probably at less risk of changing tastes than the more focused pure fashion outlets.

Expanding

The measure of JD’s success in the next few years should, I think, come from its aggressive store policy.

In the past year, we saw 200 new stores opened, and it seems they’re doing well. The firm said they’re “exceeding internal sales expectations by 20% on average & delivering payback of less than our three-year internal target.

There are plans for another 200 in the current year to add to the total.

Verdict

The retail business is still in shock, and I think we need to be careful not to pile in too heavily. But, when the recovery comes, I reckon JD could be at the head of it. I think it’s one to watch.

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.

Alan Oscroft 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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