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JD Sports looks set for the FTSE 100. Do you understand the growth story?

JD Sports Fashion (LSE: JD) shares have had a fantastic run this year, rising nearly 80%. That’s boosted the stock’s market-cap from a little under £3.5bn at the start of the year to nearly £6bn today. That means JD could be set for a move into the FTSE 100 in the not-to-distant future as it’s currently bigger than around a quarter of FTSE 100 stocks.

Here, I want to take a closer look at JD and examine what’s been driving the stock’s recent growth. Do you understand the JD Sports story?

Not your standard sports store

I’ll admit that until about three years ago, I didn’t get JD Sports. Does it sell proper running shoes? No. Does it sell tennis racquets? No. Golf gear? No. What kind of sports store is this? But then one day it dawned on me. JD Sports is less about sports and more about fashion. And that means it’s benefitting from two huge trends.

Trainers are hot

For starters, one of JD’s key areas of focus is designer trainers, and this is a market that’s absolutely booming right now, driven by strong demand from Millennials. Contrary to what their name suggests they’re for, trainers are in no way confined to courts, tracks and pitches anymore, and sales of fashionable trainers are going through the roof. Indeed, the global athletic footwear market is forecast to grow at an annualised rate of over 7% in the years ahead, and it could be worth close to $100bn by 2025, according to some sources.

Now, while there are many brands that operate in this space, the two biggest, without a doubt, are Nike and Adidas. These two alone sell over $35bn worth of shoes every year. And which brands does JD Sports have a focus on? You guessed it – Nike and Adidas. So, as a trainers specialist, JD is profiting handsomely from the popularity of trendy trainers. 

Athleisure is on fire 

The other main theme  JD is profiting from right now is ‘athleisure’. This is a trend in which fashion clothing designed for athletic activities (such as yoga pants, leggings, and trainers) are worn in other casual settings, such as brunch with friends. Again, this is a large, fast-growing market (some sources estimate it could be worth over $350bn by 2020) and JD – which sells a whole range of slick athleisure wear – is benefitting.

Strong growth

Put together, the demand for trainers and athleisure wear (along with its combination of physical stores and a great website) go a long way towards explaining why JD has been smashing it in recent years (like-for-like sales growth of 6% last year), while the majority of the UK high street has struggled.

Time to buy?

Is JD Sports a ‘buy’ right now, after the recent share price rise? Personally, I’d wait for a pullback. There’s certainly a lot I like about the shares from an investment point of view (I already own them). For example, profitability is high (five-year average return of equity of 30%+) and debt is low.

The stock doesn’t look so expensive either, trading on a forward P/E of 19.3. However, after an 80% rise in four months, a pullback here wouldn’t surprise me. I see JD as a great stock to buy on the dips.

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Edward Sheldon owns shares in JD Sports Fashion. 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.