Fashion retailer JD Sports Fashion (LSE: JD) is up 8% as I write, making it the biggest FTSE 100 gainer today. This is double the increase in the next biggest gainer, Experian. There hasn’t been any news substantial enough to justify the increase, however, which led me to take a closer look at what’s going on with the share.
Why’s JD Sports Fashion’s share price rising?
I think the share price increase is directly linked to the 11% decline seen last week. In other words, investors most likely saw it as a good opportunity to buy the share on a dip. Despite this being an awful year for retailers, JD’s share price has shown a robust increase through much of 2020.
This, of course, is related to its performance. It’s last set of results did show a dent to performance driven by the Covid-19 lockdowns. But, it was still profitable and the company also maintained its full-year guidance.
What’s next for it?
I’d brace for a downward revision when it updates investors on its financials next. This is because of the unprecedented impact of Covid-19 lockdowns. Non-essential retailers are closed in the current second lockdown. With restrictions on our public lives set to continue even after it comes to an end, bricks-and-mortar retailers will continue to feel the heat too.
But still, JD is likely to be in a good place, going by the fact that it’s in the running for buying up beleaguered retailer Debenhams. There are contradictory reports doing the rounds about whether it’s still in the race or not. We will know for sure after the lockdown ends later this week.
In the meantime, it has won the appeal against the decision of the Competition and Markets Authority (CMA) to prohibit its acquisition of Footasylum. The CMA had expressed concern on the negative impact on shoppers because of this. But the Competition Appeal Tribunal, not persuaded by CMA’s reasoning, overturned this decision.
Acquisitions can come with their own challenges, as the acquirer takes on not just market share but also the weakness of the acquired company. But as I see it, that’s tomorrow’s problem. For now, the fact that it has got a go-ahead, coupled with its interest in Debenhams, suggests that JD Sports has the means to buy them.
How’s the long term looking?
Even otherwise, I think JD Sports’s future is bright. We may still be in lockdown, but at least we can see the light at the end of the tunnel. Forecasts for economic growth in 2021 were looking up even earlier. I reckon they’ll be better still now that a vaccine is around the corner. Retailers should benefit from this.
The verdict
Further, JD Sports is a financially healthy company that’s part of a growing industry. It’s little wonder that investors are positive on the stock — evident from the fact that its price is rising despite an earnings ratio of over 40 times. I’ve long been bullish on the stock, and don’t see any reason that should change.
