The FTSE 100 has had a topsy-turvy time of late. The UK large-cap index has been broadly flat over the past month with all eyes on next week’s Budget announcement.
While there have been some big risers in recent weeks, one big name has caught my eye after sliding more than 10% in the last month.
I’m always hunting for a large-cap bargain. They tend to be as rare as hen’s teeth, but it doesn’t stop me trying. I thought I’d do some digging to see if this big-name stock is one to add to my shares portfolio.
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FTSE 100 favourite
The stock in question is JD Sports Fashion (LSE: JD). The popular sports-to-fashion retailer’s stock has been under pressure of late, slumping 13% to 134.1p per share.
What’s driving the recent selling spree? Well, the business is consumer-facing and selling largely discretionary goods. When you consider that a lot of people are strapped for cash right now, it hasn’t helped the stock’s recent prospects.
A lot to like
One thing I do really like is the power of the brand. JD is a well-known and recognisable apparel retailer, which has had success in both its bricks-and-mortar strategy and online. Online sales account for just 22% of the company’s total which I think gives it scope to grow further moving forward.
Footwear makes up over half of the company’s product mix (56%) while apparel is a further 32%. These are tough markets where trends change quickly and supply chains are critical.
That said, I think there are some positive signs for JD. For the half-year to 3 August, revenues were up 5.2% from last year to £5bn alongside a £406m adjusted pre-tax profit.
The multibrand approach, coupled with scope to grow both online revenues and market share in the enormous US sportswear market, has me cautiously optimistic about JD.
Of course, this industry is cutthroat. You only have to look at former brand powerhouses like Champion and FILA to see how quickly consumer trends can change and labels can fall out of favour. Plus there are Nike‘s current woes.
Valuation
One metric I like to use is the price-to-earnings (P/E) ratio. JD is currently trading at 10 times earnings which I think is good value for this sort of retailer.
The Footsie itself has a P/E ratio of around 15, while fellow retailer Next (LSE: NXT) isn’t far off that mark, trading at 15.3 times.
I generally would want to see lower multiples for more cyclical businesses like JD, but I think the current share price is worth a serious look.
Verdict
JD ticks a lot of boxes for me. It has a strong brand name alongside a diversified product and sales channel mix. While consumers are hard up at present, there are potential further interest cuts on the way.
Retail is a tough game with increased risk of changing consumer trends, supply chain disruptions and changing consumer trends. However, with a reasonable P/E ratio versus peers and potential room to expand online sales, it could be a long-term buy for me.
Given the potential implications around the UK budget, I’ll be on the sidelines for the next couple of weeks. At 134.1p per share, however, JD is top of my buy list when I have some spare cash.
