Why Sports Direct International Plc Is Falling Today

Sports Direct International (LSE: SPD), the UK’s leading sports retailer, is falling today after the company issued its interim management statement for the 13 weeks ending 27th July.sportsdirect

The company reported that group sales for the period rose 12.2% year on year, rising from £634m as reported a year ago, to £711m. Gross profit increased by 11.8% over the same period from £269m to £301m.

However, despite this good overall performance, divisional results were less impressive. For example, during the period the group’s Premium Lifestyle brand sales decreased 8.8% and gross profit fell 11.6%. Sports Retail sales put in the strongest performance over the period, with sales jumping 16.3% to £611m and gross profit rising 11.8% to £301m. 

Commenting on the results, Dave Forsey, Chief Executive said: 

“As we highlighted at our preliminary results in July, recent trading, including the period since 27 July, has been in line with management’s expectations with some stronger weeks offset by England’s disappointing World Cup performance.  Within Sports Retail we continue to focus on upgrading our store portfolio and integrating recent acquisitions, including Eybl and Sports Experts in Austria.”

The group continues to target underlying earnings before interest, taxes, depreciation and amortization (before share scheme costs) of £360m for the current period. Interim results will be reported on the 11th of December. 

What to do?

For the most part, today’s results from Sports Direct met expectations and there’s no reason to panic. Unfortunately, the company’s sales did take a hit due to England’s dismal World Cup performance but this is outside of management’s control. What’s more, the Sports Direct business appears to be performing well, even without, what would have been, a short-term boost from World Cup success. 

Still, double-digit sales growth does come at a price and Sports Direct’s lofty valuation may put some investors off. In particular, at present levels Sports Direct is trading at a forward P/E of 18.7, although the City is currently expecting earnings per share growth of 23% this year. Earnings growth of 23% puts Sports Direct’s shares on a PEG ratio of 0.8, indicating growth at a reasonable price. Current City forecasts indicate that the company is trading at a 2016 P/E of 16.3. 

Get in before the rest 

So, Sports Direct’s lofty valuation may put some investors off, even after considering the company’s rapid growth rate. That’s not a problem, every investor has their own way of doing things and there are plenty of other opportunities out there.

You see, the key when searching for potential, undervalued multi-baggers is to look under radar. You want to get on board while the company is still an unknown quantity, that way you won’t need to pay a premium in order to benefit from the company’s growth.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.