I highlighted JD Sports Fashion (LSE: JD) as my favourite FTSE 100 growth share exactly one year ago, calling it an “unmissable recovery play”. The shares had crashed 25% on 4 January 2024 following a surprise profit warning. I bought in at 115p on 22 January, but jumped too soon and quickly found myself in the red.
On 30 July 2024, I wrote that “there are risks in buying JD Sports, but I think they’re outweighed by the potential rewards”. Sadly, I got that the wrong way round, in the short run. The shares have fallen 30% since then.
The recovery hasn’t arrived – quite the reverse.
Profit fall clouds progress
JD’s latest full-year figures on 21 May, showed profit before tax dropped 4% to £923m. Reported profit fell 11.8% to £715m. Like-for-like sales dipped 2% in the quarter to 1 May.
The American market – now JD’s biggest, making up around 45% of operating profit – is particularly tough, as like-for-like sales slumped 5.5%. Key partner Nike, which drive almost half of JD’s sales, continues to limp along.
One year ago, I didn’t foresee the brutal impact of Donald Trump’s tariff threats on sales. The UK may have got a quick trade deal but Europe’s been made to wait, hitting brands such as Adidas. Much of the product is sourced from Asia, where deals have yet to be concluded. The uncertainty has hit consumer demand, dented confidence and pushed up prices. The ‘King of Trainers’ has struggled to retain its crown.
There have been glimmers of hope. On 27 June, JD Sports’ shares lifted on the back of stronger-than-expected Nike results, with brokers Shore Capital predicting a possible rebound. Yet the subsequent share price bounce didn’t last, even as the FTSE 100 and US market powered higher.
If the stock was cheap a year ago with a price-to-earnings ratio of 10.5, it looks thrillingly cheap today on a P/E of just 7.2. But cheap doesn’t mean much if the business can’t fire on all cylinders again.
FTSE 100 recovery stock’s stalled
JD Sports remains highly cash generative, with £2.37bn produced from operating activities across its past two financial years. That gives it plenty of options to invest in the business, offer more share buybacks or even to boost the dividend, which currently stands at a modest 1.2%.
I’m not the only optimist. Analysts seem upbeat, with 15 setting a median 12-month target of 116.75p. That’s a potential 31% increase from today. Eight of the 16 covering analysts label JD Sports a Strong Buy. None say Sell.
A year ago, I underestimated the damage that political risk could do. Tariffs may worry markets for some time to come. But I still believe the stock could snap back when we get more clarity. If I didn’t already hold a sizeable position in JD, I’d consider buying more today.
But investors might have to be patient. The JD share price still has the capacity to rise at speed. The problem is, nobody knows when.
