I’ve been looking to inject some excitement into my portfolio and reckon this FTSE 100 growth stock’s an unmissable recovery play.
Trainer and sportswear specialist JD Sports Fashion (LSE: JD) was on my radar for years but the shares were doing rather too well for my liking. I prefer to buy top companies when they’re down on their luck and much cheaper as a result.
On 4 January, I saw my moment. The JD Sports share price crashed 25% in a single day after the board warned that mild winter weather and heavy discounting had hit pre-Christmas sales. Investors hadn’t seen that coming.
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FTSE 100 shocker
The crash wiped more than £1.8bn off its value, taking it to a 52-week low. Over 12 months, the shares are still down 20.59%.
I’m constantly on the watch for moments like these, although I typically wait for the dust to settle before wading in. I bought JD Sports on 22 January at 115p per share. It’s been bumpy, but things are now looking up.
The cost-of-living crisis has hit the fashion sportswear market hard, with Nike and Adidas both reporting falling sales at the tail end of 2023. A lack of exciting new product launches didn’t help.
As a middle market fashion chain, JD Sports felt the squeeze as some shoppers traded down to budget brands, while those still flush with cash traded up. Its strength suddenly became a weakness.
I’ve learned the hard way not to expect a sudden come back from a profit warning. But today, I’m feeling optimistic as the shares start to recover. Suddenly, instead of being down on my trade, I’m up 9.62% with the shares at 126p. I’m betting it’ll go a lot, lot higher, given time.
JD Sports still look cheap, trading at just 10.51 times trailing earnings. In the glory growth days, they routinely traded at around 20 times.
Long-term buy
Challenges remain. Q1 results, published on 31 May, revealed another drop in sales in what CEO Régis Schultz called a “volatile” market. This knocked another 9% off the share price.
Yet Schultz is hungry to expand, recently agreeing to buy American athletic retailer Hibbett for $1.08bn. JD Sports has opened more than 200 stores in Q1 and plans another 200 by year end. This helped to lift overall Q1 revenue 10.7% to £10.4bn.
Schultz says JD remains “on track to deliver our profit guidance for the full year”. He’s playing for high stakes and if he falls short, my stake could easily be plunged straight back into the red again.
Yet I’m pleased to see him seizing the moment. That’s why I bought the stock. Certainly not for dividend income, as it yields a meagre 0.48%. There are risks in buying JD Sports, but I think they’re outweighed by the potential rewards.
