If it wasn’t for WPP and Mondi, the JD Sports Fashion (LSE:JD.) share price would be the worst performer on the FTSE 100 over the past month. On 6 October, the leisure retailer’s stock closed at 104.5p. Today (6 November), it’s possible to buy one share for around 85p.
This fall of nearly 19% is particularly disappointing for shareholders given that it had climbed 65% since recording its 52-week low in April. This was just after President Trump’s ‘Liberation Day’ announcement on tariffs.
Following a series of acquisitions, the US is now the biggest market for the group. And with the majority of the products that the group sells being manufactured in Asia, it’s particularly vulnerable to higher import taxes imposed on the continent.
In common with most retailers in America, tariffs are a lose-lose. If tariffs are passed on to consumers it’s likely that sales will fall. Otherwise, the group’s margin will be squeezed.
A bit of a mystery
But it’s not obvious why the group’s share price has fallen so significantly over the past month. There have been no major stock exchange announcements – it’s not due to release its third-quarter trading update until 20 November – and, as far as I can see, there have been no broker downgrades.
In fact, yesterday, Shore Capital said: “This recent weakness has us somewhat scratching our heads looking for a catalyst but in truth it is likely a combination of more macro-events.” The investment firm says there’s now a “buying opportunity”.
And I can see why. Based on the consensus of analysts, the retailer’s expected to report earnings per share of 11.68p during the 53 weeks ending 7 February 2026 (FY26). This implies a forward price-to-earnings ratio of just over 7.
In my opinion, that’s remarkably cheap for a company that’s expected to generate free cash flow of £502m in FY26. And one that’s forecast to be in a net cash position (ignoring lease liabilities) by the end of its financial year.
However, as acknowledged by Shore Capital, the retailer’s fortunes are affected by consumer confidence. The US economy is growing fast but there are signs that its labour market is weakening. On this side of the Atlantic, the UK appears fragile with a tax-raising budget expected this month.
Pros and cons
Significantly, it’s believed that around half of the shoes and clothing sold by JD Sports are made by Nike. The American sportswear giant has struggled recently for a variety of reasons including a lack of product innovation. As part of its turnaround strategy, to try and restore earnings to previous levels, it’s increased its prices significantly. It remains to be seen what impact this will have.
However, there’s more to JD Sports than one brand. It sells all the others that are taking some of Nike’s market share. Its healthy balance sheet and strong brand mean it’s in a better position than most to cope with any economic headwinds. And next year, there’s another World Cup, which should give the group a bit of a boost.
From what I can see, there’s nothing fundamentally wrong with JD Sports. The fall in the group’s share price means, in my opinion, an already cheap stock has become even cheaper. On this basis, long-term investors could consider adding it to their portfolios.
