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This FTSE 100 retailer is up 50% in six months – but is it now overvalued?

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The demise of the high street has long been forecast. According to some, in a matter of a few years we will all be making most of our purchases from the comfort of our sofa or on the train home from work.

But while the naysayers have been right about many traditional UK retailers, some have impressively bucked the trend, none more so than sportswear provider JD Sports Fashion (LSE:JD.)

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In the last six months alone, its shares have risen just under 50%, outperforming the FTSE 100, which has gained little more than 1% during the same time.

JD’s performance has earned its a place within the the UK’s primary stock index, after it was promoted to the FTSE 100 in June. But the question now is, following growth of more than 800% in five years, how much higher can the share price go?


One reason why, I believe, JD shares have performed so strongly in recent years is its ability to diversify its product range, moving away from simply selling sports clothes towards more casual fashion and offering a variety of well-known brands and exclusives in its shops.

In a brand-focused world, retailers that can attract the most in-demand labels have an in-built advantage. The development of strong relationships with key brands such as Nike and Adidas has been a core part of the firm’s growth.

While shares of rival Sports Direct have come under severe pressure for many reasons, JD’s success has been in stark contrast to Mike Ashley’s business, which is considered a lower quality alternative in terms of both product and customer experience.

Recent earnings reports have served only to back up the faith of long-term investors in the chain and they will now be reaping the rewards following the meteoric rise. In the most recent quarter, like-for-like sales grew 10%, with a staggering 80% of sales coming from bricks-and-mortar stores.

The average growth in annual profits for the last five years has been 31%, although some are asking at this point just how much room there is for further growth.

International expansion

While another 800% jump in the JD share price over the next five years seems unrealistic, there is still much to suggest that it can continue on a more incremental basis.

Key to that is the potential to expand internationally, with the company now counting on 31 more stores across mainland Europe, Asia and the US than it had six months ago.

In terms of dividends, JD’s yield based on a current share price of 710p is 0.3%, hardly one to get the pulses racing for income investors. Trading on a P/E ratio of more than 25, it may not appear to represent the best value for some investors either.

That high P/E ratio is based on its impressive outperformance though, and as an investor looking for growth prospects I’d certainly look to add it to my portfolio.

With the rest of the UK retail sector struggling to cope with the weight of a massive consumer shift, as well as the difficulties associated with Brexit, JD is clearly doing something right amid testing times.

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conorcoyle 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.

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