What a week it has been for the FTSE 100!
The blue-chip index of leading British shares broke through to a new all-time high.
That might make it sound like top London shares are expensive – and some of them certainly look that way to me.
Should you invest £1,000 in JD Sports right now?
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But I reckon there are some real potential bargains on offer too, despite the overall index’s strong performance.
In fact, I bought more of a FTSE 100 share I already own this week after its price plumbed depths last seen five years ago, during the early stages of the pandemic lockdowns.
Step (or run) forward… JD Sports
The share in question, JD Sports (LSE: JD) has not been falling for no reason.
This month it issued its second profit warning in short order (the prior one was in November).
Geopolitical tensions pose a risk to its supply chain costs and therefore profit margins.
Sportswear brand Puma missed its profit target during the week, further alarming investors about the health of the sector. Also, credit agency Moody’s downgraded Nike debt, which did not help investor sentiment.
Are things as bad as they look?
From the share price chart, it is hard as a shareholder not to feel alarmed about what may be going on with JD Sports.
Still, just as the FTSE 100 hit a new high this week so too did its German counterpart the DAX – thanks to a strong performance from Adidas.
There are other signs that the sportswear and shoes sector might not be as battered as suggested by JD’s share price. In its latest profit warning, the company reported organic revenue growth of 3.4% for the nine weeks under review.
It expects full-year like-for-like revenue to be flat. While that is nothing to write home about, I do not think it is bad either.
That is especially true given that JD Sports has apparently maintained like-for-like sales without matching heavy competitive price promotions in the last couple of months of 2024.
Why I think JD Sports is a great company — and at a great valuation too
Clearly there are risks, especially if a weak economy leads consumers to rein in their discretionary spending.
But while the retailer this month lowered its full-year outlook for profit before tax and adjusting items, it still expects that to come in at £915-£935m.
Compare that to the current market capitalisation (£4.2bn) and I think the share is deep in value territory.
I may be wrong. Its near-relentless fall since September makes me wonder if I have missed something. Clearly a lot of investors are bearish about the stock, even though it has been selling for pennies.
Still, I think its strong brand, global reach, proven business model, and large customer base are significant strengths.
As a long-term investor, I expect the share price to bounce back over coming years and think the current valuation offers me a margin of safety.
So I loaded up more of this FTSE 100 share into my portfolio.
