When I saw a stock that had doubled in price since March, I was excited. After doing some research, it’s become my best UK share to buy now. After all, stories about doubling your money from investing don’t have to remain in the realm of dubious penny stocks. There are legitimate FTSE 250 and FTSE 100 stocks with high growth potential. Of course, having the ideas is one thing, but you also need the funds to make it a reality. If you have £2,000 liquid to invest at the moment, then read on. Yet even if you have a smaller amount to invest, or soon will have funds, this is relevant to you.
The stock I’m talking about is JD Sports Fashion (LSE: JD). Since the aggressive market sell-off in March led to a share price slump to circa 275p, the stock has rallied hard. It currently trades around 650p, well over a 100% return in three months. So what’s the story here?
Firstly, some of this return is simply a factor of the broader market bounce-back. In the FTSE 100, only seven out of the 100 constituents have recorded a negative price performance in the past three months. So naturally JD has benefited from investors buying up all kinds of FTSE 100 stocks as they felt the sell-off had been overdone.
But to rally over 100% in this period indicates to me that there’s more than just positive sentiment at play here.
JD was recently hit with the news that the buyout of Footasylum was to be blocked. The Competition and Markets Authority (CMA) said that the two firms were very similar, with a survey showing that customers saw either firm as their next best alternative for specific items. JD will appeal the decision. Irrespective of the result, I think the acquisition strategy it is pursuing is key to the recent rally in the share price.
In justification of the deal, JD notes that the Covid-19 pandemic has hit Footasylum hard. This is also true of many other sports/outdoors retailers. Even Go Outdoors (owned by JD) is speculated to be heading into administration. So even if the CMA doesn’t overturn its Footasylum decision, there are many other firms for JD to look to buy. Boohoo is currently pursuing such a strategy too.
I think this could lead to JD being able to buy up or merge with various smaller retailers in the coming year or so. Given the financial difficulties, it should be able to buy up firms at a discount. In the long term, this could strengthen its position in the marketplace as the largest player. Given that the CMA won’t allow mergers with a very similar competitor, this may force JD to diversify its offering further, buying into firms that operate in an identifiably different part of the sector.
Can the JD sports share price rally further?
Given the above reasoning, I still think there’s plenty of room for the share price to rally higher. The share price is still 20% lower than where it sat in January, as a rough barometer. With £2,000, this provides a tangible potential of over £400 profit if it bounces back. From there, I think the extent of the rally depends on which firm JD might target to buy, and what discount it’s able to buy it at.
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Jonathan Smith and The Motley Fool UK have 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.