Between September 2024 and April 2025, the JD Sports Fashion (LSE:JD.) share price crashed 60% into value stock territory. And while its market-cap’s started bouncing back, JD Sports shares are still trading near a 52-week low. As such, the price-to-earnings ratio now sits at just 9.2 – more than half of its historical average.
So what caused the sportswear business to tumble? And is this now secretly a buying opportunity?
What’s going on with the shares?
Prior to 2022, this business seemed to be firing on all cylinders, delivering explosive returns for growth investors. But since then, momentum struggled as inflation ticked up. And eventually, the pressure on sales translated into a series of profit warnings throughout 2024 and into 2025.
While sales were more resilient in Europe and Asia Pacific, they proved insufficient in offsetting the slowing demand in the UK and the US. And to be fair, JD Sports wasn’t the only business caught out by the cyclical slowdown. Across the pond, Nike has been on a similar downward trajectory along with other sportswear businesses like Lululemon Athletica.
Many clothing/footwear retailers turned to discounting to try and keep sales volumes up – a strategy that JD Sports avoided to try and protect margins. That decision arguably only amplified competitive pressures in a price-conscious consumer spending environment.
However, looking at the latest results, gross margins were ultimately protected at 48% despite rampant competitive discounting activity. At the same time, organic sales were up 6% ahead of its wider target markets, with operating cash generation climbing 7.2% to £1.3bn. With that in mind, it’s not surprising to see some analysts speculate about a potential buying opportunity.
The value opportunity
Looking at the latest broker forecasts reveals a picture of mixed opinions from institutional investors, with half recommending to Buy while the other half suggests Hold. Yet when looking at the average consensus for the 12-month share price target, JD Sports Fashion shares could be 30% undervalued today, even with its slower growth rate.
Most analysts are projecting modest growth over the next three years with top-line expansion at 5.9% and the bottom line at 11.1% on the back of wider margins. Those assumptions don’t appear unreasonable in my mind, especially if the company maintains its current recovery pace.
However, like all investments, there’s notable uncertainty and risks to consider. Despite strong cash generation, management continues to issue cautious guidance in light of continued pressure on consumer spending. Furthermore, with a long list of UK employees on its payroll, the firm’s expected to receive a £30m hit as a result of changes to the British Minimum Wage and National Insurance contributions.
Needless to say, these headwinds are less than favourable. And with new US tariffs potentially adding even more pressure on Asian imports to US stores, achieving even a modest level of growth could prove quite challenging. Yet, at today’s valuation, these might be risks worth taking. That’s why I think this stock deserves a closer look from long-term investors.
