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Forget the Sports Direct share price, I think the FTSE 100’s JD Sports has further to climb

Sports Direct (LSE:SPD) has been making headlines for all the wrong reasons these past few months as its boss Mike Ashley fails to endear himself to investors or the public at large. 

Last year, Ashley bought House of Fraser through Sports Direct for £90m, in a takeover that he now openly regrets.

The company also spectacularly failed to take over Debenhams and lost its £150m stake in the business when lenders gained control. Sports Direct retaliated by launching a legal challenge to its restructuring plans but has since dropped the proceedings.

Even more telling and relevant to investors was the much-delayed publishing of Sports Direct’s annual accounts, due mid-July and eventually published 10 hours late on July 26. The news was far from good. The company is facing an astronomical tax bill of €674m from the Belgian authorities and revenue was down almost 2% for the year. CFO Jon Kempster resigned, followed by the auditing firm Grant Thornton, reflecting concerns over the tax bill. And there was that admission about how tough the House of Fraser turnaround will be.

The Sports Direct market cap is now approximately £1.2bn, down from £2.2bn this time last year and a significant low from the £5bn+ heights it enjoyed five years ago.

As fellow Fool Karl Loomes said a few days ago, it’s probably best to steer clear for now.

Onwards and upwards

So is there a way to play the trainer/athleisure trend without all the drama? Continuing the sports fashion theme, I thought I’d look at JD Sports (LSE:JD), the major retailer and distributor of sport and athletic-inspired fashion and whose share price has been on an upward trajectory. It has risen by 77% this year and accelerated into the coveted FTSE 100 in June.

I’m disappointed to see its dividend yield is a paltry 0.4%, but with cover of almost 17 and growth close to 5%, I think it’s safe to assume the company will pay it.

Its debt ratio of 51% is above the relatively safe level of 40%, but not scarily high. Its debt-to-equity ratio is almost 12%, which is pointedly lower than Sports Direct’s dizzyingly high 66%, suggesting Sports Direct is aggressively using debt to finance its growth.

It’s often a positive sign of faith when directors buy shares in their own company and Chairman Peter Cowgill bought 15,000 shares last week for 613p, topping up his existing holding to almost 8.5m shares.

The share price has risen steadily throughout July, but does it have further to climb? Analysts recently put a price target of 700p on the retailer and with interim results due at the beginning of September, I believe it will continue to climb through August.

There are a few other reasons I like JD. The company paid almost £400m for US athleisure chain Finish Line last year, giving it huge growth potential in the lucrative American market. Sports Direct has a 3% profit margin while that at JD Sports is 5%. Both seem relatively low, but JD still beats its rival on this metric. Regarding how efficient management is at using its assets to generate earnings, JD has a 12% return-on-assets, which is more attractive than the 4% at Sports Direct. As a customer, I prefer the experience and ambience of walking around a JD Sports store than Sports Direct and as it stands, I’d prefer to own shares in JD too.

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Kirsteen 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.