There aren’t many shares on the FTSE 100 that still trade for pennies. But at just 83p, JD Sports (LSE: JD.) is one of them. The beleaguered sports fashion retailer has had a rough time since the pandemic, losing half its value in the past five years.
As a result, the shares now look significantly undervalued, leading to elevated forecasts for 2026. The average 12-month price target for the stock is around 116p — a 40% gain from today. Even the most bearish still expects a minor gain while the most optimistic are eyeing 200p — a 140% climb!
But I always take broker forecasts with a pinch of salt. To get a more realistic idea of its recovery potential, we first need to understand how it got here.
A sector-wide issue
JD Sports’ share price collapse stems from a fundamental shift in its growth trajectory. In 2021, pent-up demand for sportswear meant the company emerged from the pandemic trading at 23 times earnings. That boom has evaporated and today it is valued at just 7.2 times earnings. The stock price reflects a business facing margin compression, weakening consumer demand, and structural cost challenges.
Rather than poor management, the losses are more likely due to a retail sector caught in a squeeze.
The core problem is that earnings per share have fallen even as revenues grew. In the past two years, adjusted profits declined 8% to 10% annually despite revenue growth of 2% to 9%. Like-for-like sales turned negative, falling 2.5% in the first half of FY26 and 2% in Q1.
Its majority youthful customer base has been hit by higher living costs, rising unemployment, and squeezed incomes.
Compounding this, a tough market has forced promotional pricing, partly as a result of US trade tariffs. JD’s gross margin contracted by roughly 100 basis points over two years, due to heavy discounts on Nike, which accounts for 45% of sales. Meanwhile, operating costs surged due to wage inflation, supply chain investments and technology spending.
Long story short, despite a strong core business, this combination of factors created the perfect storm for an extended downturn.
Recovery potential
Based on future cash flow estimates, analysts figure the stock is trading around a 45% discount to fair value. This goes a long way to justify the average 40% growth forecasts.
But that doesn’t guarantee anything. In its latest annual reports, the company explicitly flagged “incrementally weaker macroeconomic and consumer external data points” as a key ongoing risk. The rise in youth unemployment and decline in discretionary spending has already hit sales hard — and the UK’s economic outlook remains shaky.
My verdict
As a shareholder, I’d love to say I’m 100% confident in JD Sports’ recovery. Unfortunately, many of the macro factors that have driven losses are still present. Those analysts with lofty price targets are likely expecting a best-case scenario. In reality, a recovery will depend on several factors outside of its control.
It comes down to a classic ‘value trap vs value opportunity’ that may be worth considering for investors with the risk appetite. As for me, I’ll keep holding my shares for now but I don’t plan to buy more.
In the current economic climate, I’m more interested in stocking up defensive retail shares like Tesco, Reckitt Benckiser and Unilever.
