Here, I review the company to understand the pros and cons of investing in this company.

Wise company’s overview

The company was started by two Estonian friends, Kristo Käärmann and Taavet Hinrikus, in 2011. Frustrated by the high fees charged to transfer money overseas, they found a way to transfer money cheaply. Earlier this year, the company’s name was changed from TransferWise to Wise, primarily due to the extended services of the company. 

The company used a direct listing instead of the usual initial public offering (IPO). A direct listing is cheaper due to the absence of intermediaries. This type of listing is more suitable for companies that are already very popular. In fact, this was the case of the Wise shares. Another key differentiator is that only the existing investors sell shares and no new shares are issued in this method.

The company has two classes of shareholders. The company’s early investors include PayPal co-founder Peter Theil. The Class B shares will have an extra nine votes per share. They will not be listed and will cease to exist after five years of the listing of shares.

Fundamentals

The company has solid revenue growth. Revenue grew at a compound annual growth rate of 54% from the fiscal year 2019 to 2021. In the fiscal year 2021, revenue grew 39% to £421m. It also has a geographically diversified revenue base. Europe, excluding the UK, constituted 33% of 2021 revenue, the UK (23%), Asia-pacific (21%), North America (17%), and the rest of the world (6%).

Another reason why I like Wise shares is that the company is profitable. Its net profits grew from £10.3m in 2019 to £30.9m in 2021. The free cash flow was £103.9m. The company has been able to grow its active customers rapidly. It grew from 3.3m in 2019 to 6.0m in the fiscal year 2021.

Wise shares – risks to consider

The company has a dual-class shareholding. It gives the founders and early investors the majority of the voting rights. It is good to have more control over the functioning of the company. On the other hand, retail investors will not be able to influence the company’s decisions. 

Wise will face stiff competition from traditional banks and digital banks. Its close competitor, Revolut is also popular with similar services and is growing rapidly, which is a concern.

Wise shares are currently trading at a price-to-sales ratio of 31. In my opinion, the valuation is a bit high for me to consider it as a value buy.

Taking all things into consideration. I like the company’s products and its strong revenue growth. I will keep the stock on my watchlist and wait for a better entry point to add it to my portfolio.

The post Should I buy Wise shares? appeared first on The Motley Fool UK.

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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended PayPal Holdings. The Motley Fool UK has recommended the following options: long January 2022 $75 calls on PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here, I want to analyse the stock to understand if the drop is a buying opportunity for my portfolio.

Recent trading update

ASOS revenue growth was strong for the four months ended 30 June 2021. However, the company announced that trading in the last three weeks was more muted. Management cited the continued Covid-19 uncertainty and inclement weather as contributors to the weak market demand. I believe that this was one of the reasons for the ASOS share price drop.

Management has also been cautious on the outlook for the rest of the year due to the rising number of Covid-19 cases. The recent travel restrictions have also delayed holiday plans and have made it difficult for people to plan their wardrobe purchases. 

Total group revenue for ASOS grew by 21% to £1.3bn. It was mainly helped by strong growth in the UK, which grew 36%. The growth was also strong in the US as the region grew by 20%. The active customer base increased to 26.1m from 24.9m at the end of February 2021.

The company has recently announced a partnership with a US-based multi-channel retailer Nordstrom, which will invest in a minority interest in the company’s brands like Topshop, Topman, Miss Selfridge, and HIIT brands. In my opinion, this is positive since Nordstrom has a good presence in the North American markets. Also, previously it had sold Topshop and Topman clothes in the US when the brands were under Arcadia Group.

The ASOS share price – risks to consider

ASOS revenue growth has been extraordinary in the past. The company benefited from the pandemic since most high street retail shops were closed. This led to strong demand for online retailers. In my opinion, with the opening of retail, the demand for online retailers might cool. If the trend changes, then it could impact the ASOS share price.

Weather conditions have been very uncertain this summer in the UK. Management also mentioned in the earnings call the sudden change in the customer online searches, from summer wear to winter wear observed on their website. Also, Covid-19 cases are increasing globally. Most people are finding it difficult to plan their holidays. This might harm the company’s revenue growth.

Global supply chain disruption is another concern for the company. The increase in freight costs due to supply constraints could further strain the company’s profits. The gross margin in the recent quarter dropped 1.5% due to higher freight costs and unfavourable foreign exchange movements. This, in my opinion, is another reason for the ASOS share price to drop. 

Bottom Line

The company’s revenue has been good in the past. However, I am not convinced to buy the stock due to the current market uncertainty. I will continue to keep the stock on my watchlist for now.

The post Why is the ASOS share price falling? appeared first on The Motley Fool UK.

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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here, I analyse the stock to understand whether I should be adding the stock to my portfolio.

ITV’s company fundamentals

ITV’s revenue in the first quarter grew 2% to £856m. It has made a good start to the year. Especially taking into consideration that the Covid-19 restrictions were in place for the entire quarter. I believe that the positive results in the last couple of quarters are one of the reasons for the strong rise in the ITV share price. 

In the words of Carolyn McCall, the company’s chief executive, “Our advertising revenues are rebounding from last year with April up 68% and we expect May to be up around 85% and June up between 85% and 90%, compared to the same period in 2020.”

Looking into the key performance indicators, ITV’s total viewing hours increased 1% to 4.52bn, which is positive. At the same time, the ITV family share of viewing showed a slight drop from 23.6% to 23.1%. ITV Hub, an online video-on-demand service, has also increased its registered users by 5% to 33.6m.

The company has good liquidity of £1.4bn at the end of March 2021. Net debt was £558m, slightly higher than £545m at the end of December 2020. The cash flows have been good. Adjusted free cash flow was £605m for the full year 2020, up from £359m in 2019.

Euro 2020 advertising boon?

A record 26.3m people watched the semi-final match, for which ITV had the sole rights. Viewership peaked at 27.6m when the Hub and non-TV devices are taken into consideration. It was the largest football audience ever for a single channel. ITV will share the broadcast with BBC for the final match. So the semi-final match had the highest advertising rate, which as per reports, suggests £500,000 to £750,000 for a 30-second advert. In my opinion, this is positive since the company missed advertising revenues last year, due to Covid-19.

ITV share price – risks to consider

The number of Covid-19 cases is increasing all over the world. Global growth will slow down if this trend continues. In my opinion, this might have an impact on the company’s advertising revenues. Also, production delays are another risk due to the pandemic. 

ITV shares are currently trading at a price-to-earnings ratio of 17.06 compared to a five-year average of 13.68. Its price-to-sales ratio is 1.75 compared to its historical average of 1.82. In my opinion, the upside might not be much as the ITV share price is trading close to its historical average.

Bottom line

The company is fundamentally strong. I will continue to keep the stock on my watchlist. I am not a buyer today because I believe that the shares are not a value buy at current prices. 

The post The ITV share price is rising: should I buy now? appeared first on The Motley Fool UK.

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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

UK supermarket stocks are in buzz following the recent Morrisons deal. The sector is otherwise considered dull due to the slow growth nature of the mature companies operating in this industry. In contrast, technology companies tend to have robust growth.

I have been closely watching the supermarket sector for the past few months. One main reason was to add a stable large-cap stock from this sector to my portfolio. Here, I will explain why I bought Tesco shares.

The strong fundamentals

Tesco’s fiscal year 2021 revenue grew by 7.1% to £53.4bn. In comparison, its close competitor Sainsbury’s sales fell 0.3% to £32.3bn. The sales were strong as the company was able to increase its market share. Excluding Central Europe and the Tesco bank, sales were even stronger as it grew by 8.8% to £48.8bn. The lockdown was a boon to the company as it grew its UK online sales by 77% to £6.3bn. 

I like companies that have good free cash flows. Tesco had a retail free cash flow of £1.2bn. It has a stable balance sheet. Net debt was £12bn, down 0.3bn from the previous year. The company’s sale of its Asian businesses helped to reduce its pension liabilities by £2.5bn. Its debt-to-equity ratio is 0.59. The ratio is good, in my opinion.

The company’s marketing efforts have been successful in increasing sales. The Clubcard prices, which were launched in September last year, are now extended to over 3,000 products. There are over two million Clubcard app users. Clubcard prices rewarding loyal customers are now available in all 1,844 Express stores. The Aldi Price Match has also helped the company to remain competitive. 

The Tesco shares are trading at a forward price-to-earnings ratio (P/E) of 13, based on analysts’ next year earnings per share estimate of 18.28p. However, actual performance might differ from analysts’ estimates. Currently, Tesco is trading at a P/E ratio of 31.5 compared to the five-year average of 49.78. The shares are trading at a discount to their historical averages. 

Tesco shares – risks to consider

Tesco’s business benefitted from the lockdown as people purchased goods online and grocery item requirements increased as people were at home. Now with the reopening, people will start spending money on restaurants and pubs. Also, there is a high level of uncertainty in the business environment with the rising number of Covid-19 cases. 

The supermarket sector is highly competitive. Consumers can easily compare prices from one store to another. Discount retail stores like Aldi and Lidl are aggressively trying to increase their market share. This could put pressure on the company’s profit margins. 

Conclusion

Tesco is a fundamentally strong company. It is a large-cap stock, which is usually considered more stable. I also like the company’s dividend yield of around 4%. However, I understand that dividends might vary each year, or even be cancelled. In my opinion, consumer demand is strong for the supermarket sector. I am happy to hold Tesco shares in my portfolio, the market leader in the UK grocery sector.

The post Here’s why I bought Tesco shares appeared first on The Motley Fool UK.

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Royston Roche owns shares in Tesco. The Motley Fool UK has recommended Morrisons and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I reviewed the company earlier this year. The stock is up around 40% since I purchased it for my portfolio. Here, I would like to analyse the company to decide whether to hold or sell my shares.

BT company’s fundamentals

BT’s fiscal year 2021 revenue fell 7% to £21.3bn. This was in line with the management’s estimates of the impact of Covid-19. Net profit dropped 15% to £1.47bn. The company’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) came at £7.4bn, which was in line with the management estimate of £7.3bn to £7.5bn. Overall, in my opinion, the financial results were good. 

Next, the company’s modernisation programme is progressing well. It delivered gross annualised savings of £764m in the first year with an associated cost of £438m. It has a target to save £2bn with an associated cost of £1.3bn over a period of five years.

The UK government has increased its investment focus in the telecom sector. Also, Ofcom recently published the outcome of the Wholesale Fixed Telecoms Market Review, which was in favour of the company. It will give the company greater regulatory certainty and confidence to earn a fair return on its Fibre to the Premises) investment. 

BT was also able to get an additional 5G spectrum for £475m. The price was lower than the previous estimates. So, the company was able to get a refund of £227m. This will help the company’s efficient rollout of 5G services and increased the cash available for investment.

BT is considering selling BT Sports. Since its launch in 2013, it has increased its visibility in homes and pubs. However, it has been a drag on the company’s profits. The move is aimed to focus on BT’s core telephone business and investments in the full-fibre and 5G networks. This, in my opinion, will also increase profits.

The BT share price – risks to consider

The company has a net financial debt of £11.7bn compared to £11.3bn at the end of March 2020. I think this debt is high for the company. It has a debt-to-equity ratio of 1.43. This is a bit of concern for me. 

The telecommunications markets are mature and highly competitive. This could put pressure on the company’s profits. It faces tough competition from Sky, Vodafone, and Virgin Media, among others. Not to mention the huge capital investments required to update with the latest technology. 

Final view

Taking all things into consideration, I think the positives outweigh the risks for the company. I believe that the BT share price will continue to rise and I have no plans to sell my shares today. 

The post Can the BT share price continue to rise? appeared first on The Motley Fool UK.

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Royston Roche owns shares in BT Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

UK stocks are continuing their bull run. The FTSE 100 index is around 5% below its pre-pandemic level. With improving economic data, I am more optimistic about the general stock market. 

Here, I have selected three stocks that I am consider buying for my long-term portfolio.

My top UK stocks

The Barclays (LSE: BARC) share price is up 50% in the past year. I like the bank for its diversified business model. It has two divisions, namely Barclays International and Barclays UK, which are both doing well. The recent results were good, helped by the improving economic outlook. It has a strong brand in the UK and also globally. The bank is well capitalised with a common equity tier 1 ratio of 14.6%, well above the regulatory requirement of 11.1%.

One key risk for the stock is that it has performed very well in the past year. There could be some investors who might sell their shares to lock in their profits. This could lead to a fall in the share price in the near term. Also, the banking sector faces stiff competition from fintech companies, possibly putting pressure on the bank’s growth.

Boohoo (LSE: BOO) has strong revenue growth. In the most recent quarter, its revenue grew by 32% to £486.1m. Another reason why I like this UK stock is that it is profitable. The gross margin in the most recent quarter was 55%. Recently acquired brands like Dorothy Perkins, Wallis, and Burton have increased the firm’s brand value. The company has also launched the new Debenhams digital department store, which in my opinion should complement the company’s growth story.

Despite the various advantages, I am watchful of the risks. Boohoo has benefitted from the lockdown as a result of the increase in online shopping. Now with full re-opening of the sectors, the growth rate might slow down. In fact, this is likely, as management has given guidance of a 25% revenue growth rate, which is below the historical growth rate of above 40%.

Turnaround company

My third pick is Royal Mail (LSE: RMG). The company has made the shift in its business to parcels from letters. It has a vast network in the UK to make timely deliveries. Its turnaround plans in the past had been delayed and now finally are bearing excellent results. The company’s share price rose about 240% in the past year. After years of lagging growth due to the drop in letters, the company’s revenues grew by 17% to £12.6bn in the fiscal year 2021. Pre-tax profits jumped to £726m from £180m in the previous year.

One key risk for this UK stock is that the pandemic had accelerated online shopping, which led to the growth in the company’s parcel division. However, it is uncertain whether this trend will continue. Also, the parcel business is very competitive, which could put pressure on the company’s profits.

The post 3 top UK stocks to buy in July appeared first on The Motley Fool UK.

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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

NIO (NYSE: NIO) stock is up 440% in the past year. It has even outperformed Tesla, whose share price rose 180% during the same period. Last week alone, the NIO share price rose 10%. 

Here, I would like to analyse the company’s financials and understand why the share price is rising.

NIO’s fundamentals

NIO recently released its monthly delivery update. It delivered 8,083 vehicles in June 2021, up 116% from June 2020. The deliveries recovered from a temporary slowdown in May caused by a shortage of chips that impacted the entire automobile industry. For the second quarter of 2021, NIO delivered 21,896 vehicles, representing growth of 112% over 2020. It matched the company’s guidance of 21,000–22,000 vehicles in this quarter.

The company’s revenues in the first quarter rose about 482% to $1.2bn. This was primarily due to the higher deliveries achieved from more product mix and expansion of the sales network. The addition in the product mix was EC6, Smart Electric Coupe SUV. The Covid-19 pandemic intensified at the beginning of 2020, which also reduced sales last year. 

NIO’s vehicle margin was 21.2% compared to -7.4% in the same period last year. It was driven by the increase in vehicle delivery volume, higher average selling price, and lower material cost. This helped the overall gross margin to reach 19.5% compared to -12.2% in the first quarter of 2020. The company’s cash flows are improving. It continued to achieve positive cash flow in the first quarter of 2021. 

Why is NIO stock rising?

I believe the strong growth in the financial results in the past year is one of the reasons for NIO stock’s strong rally. Also, electric vehicle stocks are in favour and NIO has benefitted from this trend. Last week, a Citigroup analyst upgraded the stock from neutral to buy. They have a price target of $72, which suggests an upside of around 50% from the current price. However, actual performance might differ from analysts’ estimates.

NIO’s battery swapping technology is also a major differentiator in the electric car market. It can offer a battery-as-a-solution (BAAS) solution, which reduces the upfront cost of purchasing NIO vehicles. Another advantage of this technology is quickly swapping the depleted batteries in specially-equipped service stations. 

Risks

The company is yet to be profitable. There is stiff competition in the electric car market. Also, a huge investment is required to build factories. If the losses continue for a prolonged period, it might hurt the NIO share price.

NIO stock has performed very well in the past year. However, if the growth rate does not meet the market expectation, then there could be profit-booking.

Taking all things into consideration, I think electric vehicle stocks will be in high demand. Earlier this year, I purchased shares in Scottish Mortgage Investment Trust for its exposure to electric cars and technology stocks. Though the fund has slashed its holdings in Tesla, it continues to hold 4.0% in Tesla and 3.2% in NIO. I will continue to hold my shares. 

The post Why is NIO stock rising? appeared first on The Motley Fool UK.

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Royston Roche owns shares of Scottish Mortgage Investment Trust. Citigroup is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK owns shares of and has recommended NIO Inc. and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here, I will review the company fundamentals of this FTSE 100 stock.

Melrose’s recent sale

Melrose completed the sale of Nortek Air Management for £2.62bn to Chicago-based Madison Industries. The company will use the proceeds to pay down debt and contribute approximately £100m to the GKN UK defined benefit pension schemes. GKN is the engineering giant bought by Melrose in 2018. In addition, it will return £730m to shareholders, equivalent to 15p per share, through a share consolidation.

In the words of chief executive Simon Peckham, “We have taken a conservative view for the level of the current return of capital, but if markets continue to recover, we expect to announce a further significant return next year.”

Melrose had purchased Nortek for £2.2bn in 2016. It also generated more than £700m while it was in the company’s ownership. Melrose will retain two divisions Nortek, Ergotron and Norton Control. The recently sold division makes approximately 73% of Nortek’s revenues. In my opinion, this was a successful deal for the company.

Fundamentals

The company’s revenue grew at a rapid pace from 2017 to 2019. However, the Covid-19 pandemic had an impact in 2020. It fell 24% to £8.77bn. According to the recent trading update, Melrose’s Automotive and Powder Metallurgy divisions saw recovery in the automotive sector. It also notes some encouraging signs in the Aerospace division. 

The company reported a loss of £533m in 2020 compared to £51m in the previous year. The adjusted earnings per share for 2020 were 2.4p compared to 14.3p in the previous year. The cash flows were good. Operational cash flows for 2020 were £764m. The balance sheet is stable. The recent Nortek Air Management division sale reduced the company’s net debt to two times EBITDA (earnings before interest, taxes, depreciation, and amortisation) as of 30 June 2021.

Melrose has achieved an average annual return on investment of 21% since its first acquisition in 2005. The returns are extraordinary and it shows a successful turnaround strategy once it acquires businesses. Some of the leading shareholder returns on original equity include 3.0 times for Dynacast, 2.6 times for FKI, and 2.3 times for Elster. 

The Melrose share price – risks to consider

The global economy has started to pick up but it might take a few years to recover. The aerospace industry, in particular, is one of the most affected by the pandemic. The company has significant revenue from this sector. This could hurt the Melrose share price.

The company acquires businesses and sells them later. Not all business ventures will be successful. So, if any future acquisitions do not meet the financial purpose, then future profits could drop. 

Final view

Taking all things into consideration, I like the company’s business model. However, due to the uncertainty in the business environment, mainly in the aerospace sector, I would continue to keep the stock on my watchlist. 

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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has recommended Melrose. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here, I will analyse the company to see if I should add the stock to my long-term portfolio.

Stagecoach company’s fundamentals

Stagecoach released its fiscal year 2021 results on 30 June 2021. Revenue was down 35% to £928.2m. The drop was primarily due to the lockdown. However, it was offset by new contract wins in the London area. With reopening, the company did experience some positive turnaround. For the week ending 26 June 2021, commercial sales were 68% of pre-pandemic levels. 

Stagecoach’s profit before tax fell to £24.7m from £40.6m for the previous year. The company also announced that it would not pay dividends this year. It has a net debt position of £312.6m compared to £352.1m for the previous year. This is still high in my view.

The company is targeting zero emissions for its UK bus fleet by 2035. In February, it completed one year of running two electric buses in Cambridge. In addition to low pollution, the buses have also enhanced passenger experience with a quieter and smoother journey. With global warming, investors, funds, and the general public are more environmentally conscious, which is positive for the company. It is also a key partner in UK’s first all-electric bus city, Coventry.

The Stagecoach share price – risks to consider

Stagecoach founders Sir Brian Souter and Dame Ann Gloag are expected to reduce their stake in the company to 5% from the current 27%. In my opinion, this is negative for the Stagecoach share price as the founders usually reduce the stake in a business when they are less optimistic about the company’s growth prospects.

The company’s current ratio is 0.93, which suggests that the company will face difficulty paying its current liabilities in the near term. It has long-term debt of £406.6m and pension liabilities of £263.8m. The total equity on the balance sheet is only £61m. The company got an extension to its loan repayments previously because of the lockdown. However, if the company’s financial performance does not increase, then it could find it difficult to pay its debt on time. 

The company’s plan to electrify its fleet is positive. However, it could involve capital investments. Also, it is too early to know the practicality of electric vehicles and the cost of running the vehicles. This could reduce the company’s profitability.

Final view

I believe that the Stagecoach share price might continue to rise as it will benefit from the reopening of the sectors. However, I am not yet fully convinced to buy for my long-term portfolio since I am worried about the balance sheet. So, for now, I would keep the stock on my watchlist.

The post Will the Stagecoach share price continue to rise? appeared first on The Motley Fool UK.

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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here, I consider the pros and cons of investing in this stock for my portfolio.

Fundamental analysis

JD Sports’s revenue growth has been extraordinary. Revenue grew from £2.4bn in the fiscal year 2017 to £6.1bn in 2020, growing at a CAGR (compound annual growth rate) of 37%. However, in the fiscal year 2021, the Covid-19 pandemic slowed down growth by 0.9% to £6.2bn. The performance is not bad since many retail stores were closed. Also, it was offset by an increase in online sales. To cope with the strong online demand the company entered a deal with Clipper Logistics to provide e-fulfilment services.

JD Sports’s profits grew from £184.6m in 2017 to £229.2m in 2021. It has maintained a decent profit margin during this period. It was slightly down, to 3.7%, this year due to Covid-19. Management expects profits in 2022 to exceed pre-pandemic levels, which is positive for the JD Sports share price.

Globally, profit margins for the company’s US operations were better this year due to lower promotional activity. It also benefitted from strong demand helped by the US government stimulus. Better profits from global operations have led the company to resume its dividend payments. The board has proposed a modest dividend of 1.44p for 2021. 

Net cash from operations improved to £1.1bn from £854m for the previous year. Cash generation was strong in the US thanks to exceptional trading this year. The balance sheet is strong. It had a net cash position of £795.4m at the end of 30 January 2021. It also raised equity of about £456m in February, which will be used mainly for acquisitions. 

The JD Sports share price – risks to consider

The company had robust historical revenue growth. However, given Covid-19, the global economy will take some time to recover. So, in my opinion, the growth rate might slow down. This might hurt the JD Sports share price.

JD Sports will face stiff competition from other retailers like Sports Direct, which has plans to expand in the UK and Europe. The company will also face competition from brands like Adidas and Nike that are selling directly to consumers. They are targeting direct customers in order to benefit from better margins and valuable customer data.

The company is currently trading at a price-to-earnings ratio of 39.81 compared to its five-year average of 24.75. The JD Sports share price is trading at a premium to its historical average after the strong performance at the bourses.

Final view

Taking all things into consideration, I like the company’s strong growth. However, I am a bit worried about the rising competition, which might derail that growth. Also, in my opinion, JD Sports shares are not a value buy. So, I am not a buyer of the stock today.

The post The JD Sports share price is rising: should I buy now appeared first on The Motley Fool UK.

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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Nike. The Motley Fool UK has recommended Clipper Logistics. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.