Is it time to consider this beaten-down stock for an ISA?

An ISA is a great investment vehicle that many use to maximise gains. This Fool thinks he’s found a stock that could be a smart pick for one.

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There’s little more I like the sound of than adding undervalued, beaten-down stocks to my ISA with the potential to make some incredibly attractive long-term gains.

ISAs offer a great way for investors to build their wealth. Through a Stocks and Shares ISA, not a penny is paid in tax on the capital gains made or dividends received. That means instead of potential profits finding their way into the pockets of HMRC, they go straight into mine. Result!

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

With that, here’s one stock that has been neglected by investors this year. I reckon it could be worth considering.

JD Sports

Last year was a good one for the JD Sports Fashion (LSE: JD) share price and I’m sure shareholders of the high street fashion brand enjoyed seeing the stock rise 16.4%. Unfortunately, 2024 hasn’t been quite as kind.

It’s safe to say the stock hasn’t participated in the FTSE 100 rally year to date. While the index is up 6.8%, JD is down 21.9%. Over the last 12 months, it’s down a slightly better 16.9%.

It’s up 6.1% over the last five years, which is nice to see. Nevertheless, its recent poor performance has wiped out most of the gains it had made.

A tough period

There’s no sugar-coating it, the firm has been hit extremely hard by the current economic environment. Profit warnings tend to follow one after another and that’s exactly what happened with JD earlier this year. Investors have ditched the stock as a result.

I’m wary that another profit warning could send the stock further into the doldrums. As the cost-of-living crisis rumbles on and consumer demand remains weak, it’ll certainly have its work cut out in the months ahead navigating choppy waters.

A brighter future?

But looking past that, what could the future have in store for JD? Well, I actually think it looks quite positive.

It’s on track to deliver its full-year guidance for the upcoming 12 months, so if it meets expectations, that could hopefully be the start of a much-needed turnaround.

Management is expecting profit before tax to come in between £955m and £1.035bn. No doubt that would provide its share price with some momentum.

What’s more, despite a difficult trading environment, JD is still cracking on with its expansion plans. While it continues to invest in its online presence, it’s also expanding its portfolio of physical stores. Last year it opened over 200 new shops.

A bargain?

With its share price taking a beating, that means its shares look cheap. Today, investors can grab them trading on 10 times forward earnings. That’s slightly below the Footsie average of 11. On top of that, JD’s historical average is closer to 23. That suggests there’s value in its shares.

Plenty of potential

The risk with JD is that its share price just keeps sinking. Especially given the challenging months ahead. I’m expecting large bouts of volatility as a result.

But with its shares looking cheap and with strong future growth prospects, I think now could be the time for investors to strongly consider JD. I think the stock has plenty of potential. If I had the cash, I’d snap up some shares.

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.

Charlie Keough 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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