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This is 1 FTSE 250 stock I would buy immediately

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Fashion retailers’ share prices have taken quite a beating in the past year, partly in line with the overall softening in equity markets and partly because each saw a fall from grace for its own unique reasons. Luxury brand Burberry is one example of a company that has seen a share price plunge in line with the overall meltdown plus a few of its own issues. Meanwhile Superdry is an example of a company whose share price took a dramatic plunge specifically following the posting of its half-year results in December. Another one is Ted Baker, which I had written about recently, for being in news for all the wrong reasons.

There is one retailer however, that has had a far smoother ride than the rest – JD Sports Fashion (LSE: JD). To be fair, it operates in a slightly different segment than the others, in so far as they are labels, manufacturers and retailers. JD, on the other hand, is a sportswear focused multibrand retailer. But even when compared to the only other direct competition in the FTSE 250 universe, Sports Direct International, the stock has shown far greater stability.

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For this reason, I think it is worth analysing the company further to assess its potential for the long-term investor.

Rapid expansion

The key reason for the company’s performance in the equity markets is simple: its fast expansion that is hugely appealing to investors, with a 2.5x increase in revenue between 2014 and 2018. Importantly, its profits have continued to grow as well. And even in the recent tough times, the company posted an upbeat trading update, reporting a 15% increase in sales and also maintaining its gross profit margins for the 48 weeks to January 5.

It also reported geographical expansion in the same update, opening stores in Thailand and the USA. I believe this international aspect is a particularly important one, as 65% of its revenues stem from the UK at the moment. As the ultimate outcome of the Brexit negotiations is still up in the air, forecasts for the UK’s economic growth are hanging in balance so expanding to other geographies is a sound strategy.

Right time to buy?

Investors gave a thumbs-up to the trading update, with a 6.3% spike in the share price on the day of the release, breaking the two-month spell of a sub-400p price. The price has been rising since, though it is still some distance from its 521p 12-month high. There is no saying that this level won’t be hit soon, however.

The fact that even with the current increase, it is still trading at a relative discount makes the case to buy more convincing to me, even with a high P/E. It has a price-to-earnings ratio of 18x, which may seem expensive but is significantly cheaper than the 33x for rival Sports Direct. 

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry, Superdry, and Ted Baker. 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.

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