The stock market crash dealt a serious blow to many retail stocks. The majority have shed some serious value from their respective valuations, and it could well take years to recover pre-crash levels. Unsurprisingly, investors were spooked by the impact of the global pandemic on high street stores and reduced consumer spending as a result of economic uncertainty. However, one retail stock that has bucked the trend is fashion retailer JD Sports (LSE: JD), whose share price has been on a tear over recent months. Could it be one of the best shares to buy now?
Strong share price gains
After reaching an all-time high in mid-February, the JD Sports share price plunged 66% to 293p in the stock market crash. Since reaching rock-bottom in March though, the company’s valuation has rocketed by around 125% and the shares now trade at around 659p.
JD’s meteoric share price gains are far above and beyond that of the majority of companies listed in the FTSE 100. This indicates to me that there’s more to it than just a simple bounce-back. After all, it’s extremely rare for a high-profile stock to double your money in such a short space of time. Consequently, would-be investors may be wondering how sustainable JD’s current valuation is.
Recently, the company published its full-year results report for 2020. While it’s important to note that they relate to the financial year that ended in February, the results are nonetheless impressive.
A 30% jump in revenues from £4.7bn in 2019 to £6.1bn this year was the stand-out result. On top of this, the company managed to make a pre-tax profit of almost £350m, up from £340m in the previous year.
Additionally, the retailer reassured investors that online trading had remained resilient during the lockdown period. However, footfall has been noticeably weaker in certain stores since shops reopened, particularly those located in shopping centres. That said, the impact of fewer customers has been partially offset by an increase in spending from those who did visit, with shoppers more likely to make purchases than simply browse.
One of the best shares to buy now?
With the coronavirus throwing the future of the high street further into jeopardy, challenging times inevitably lie ahead for JD. Considering that 74% of group revenue comes from retail stores, it could prove hard to sustain this moving forward. Additionally, back in May, the Competition Markets Authority blocked JD’s attempted acquisition of Footasylum, stating that the move would leave shoppers worse off. While the decision came as a blow to management, it shouldn’t affect the underlying business moving forward.
Moreover, there will be plenty of other opportunities for JD to buy up various smaller retailers over the coming months and years. The company won’t have to worry about taking a mega hit to its finances either, with a bulky net cash position of around £430m.
Ultimately, with the shares still down by 24% overall, now could be an ideal time to snatch a bargain. Given my belief that there’s still plenty of room for growth in the company, I think a P/E ratio of 19 is more than justified. As such, I reckon JD Sports could truly be among the best shares to buy now.
Matthew Dumigan 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.