One firm I’ve been keeping a close eye on in the stock market recently is JD Sports Fashion (LSE: JD.).
The shares have struggled badly in 2024 after the sportwear giant delivered an unexpected profit warning in early January. Today (31 May), they fell another 5%.
Now, I’m wondering whether it might be time for me to buy the dip in this out-of-favour FTSE 100 stock.
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Challenging times
The latest hit to the JD share price came today after the company released its unaudited full-year results and provided a first-quarter trading update.
For the 52 weeks to 27 January, revenue increased 2.7% year on year to £10.5bn. However, pre-tax profit before adjusting items slumped 8% to £912.4m. This was slightly below what the market was expecting.
Adjusting for disposals and the benefit from new store openings (over 200), sales growth was actually 9%, the firm noted.
At first glance, this doesn’t appear too bad to me. I mean, we’ve been living through an extraordinary period of high inflation and interest rates. Management called this “a very challenging market“, which I don’t think is an exaggeration at all.
Looking forward to this year, JD held its adjusted pre-tax profit guidance of £955m-£1.03bn. Chief executive Régis Schultz said: “We have started the new financial 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“.
The company plans to open over 200 new stores in the current financial year.
A coiled spring?
Heading into this update, the share price had risen around 15%. This suggests the market had been anticipating some positive news today. Alas, it wasn’t to be.
I still think we could see a big rebound in the stock at some point this year though. Look at US rival Foot Locker, whose shares exploded 15.5% higher yesterday after slightly better-than-expected Q1 results.
Meanwhile, JD stock appears very good value. It’s trading on a forward-looking price-to-earnings (P/E) ratio of around 11.5, potentially dropping to less than 10 by 2026.
That’s arguably dirt cheap for a growth stock, which I would still class JD as, despite the recent lack of rip-roaring growth. It looks to be in or entering bargain territory.
My verdict
The main risk is ongoing weakness in consumer spending. Any downwards adjustment in full-year profit guidance could take the share price down another leg.
Long term though, I’m still bullish on the company’s prospects. The dual trends of casualisation and increasingly active lifestyles (more gym and sports) should support long-term sales growth, both in the UK and abroad.
Plus, in the near term, we’ve got the Euros and Paris Olympic Games this summer. For the first time, England enter the football tournament as stand-alone favourites. Scotland have also qualified.
Surely these major sporting events can only be good for business.
The one issue stopping me from adding the stock to my portfolio today is the small 0.76% dividend yield. There are currently other cheap FTSE 100 stocks offering 7%-9% yields.
Of course, this issue is specific to me alone. If I wasn’t bothered about increasing my passive income, I’d certainly consider taking advantage of the dip to scoop up shares of JD Sports.
