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2024 is turning out to be a truly miserable year for FTSE 100 share JD Sports Fashion (LSE:JD.).
On January 4, JD made things ugly with a shocking profit warning that sent its stock price tumbling. After a strong recovery, the retailer fell again in late September, partly due to the fallout from October's UK budget.
And today (November 21) it hit a new nadir for 2024, with another cold trading statement sending its shares below 100p. At 96.5p, JD is down 15% in Thursday trading and 40% so far this year.
However, I wonder if this year's price collapse represents an attractive buying opportunity for long-term investors like me. Let's take a look.
Forecast cut
More recently, JD has been hit by a toxic combination of bad weather, increased promotional activity and weak consumer spending ahead of the US presidential election.
At a group level, like-for-like sales fell 0.3% in the 13 weeks to November 2, the company said.
In the UK, corresponding revenue fell 2.4% year-on-year, while in the US sales fell 1.5%. Combined, these territories represent two-thirds of the group's sales.
Sales in Asia Pacific fell even further, by 3.8%. However, strength in Europe provided rare comfort: revenue rose 3.5%.
JD's weak third-quarter result means it now expects full-year profits.”at the lower end” from your guide. Profit before tax and adjusted items is between £955m and £103.5m, although still up from £917.2m last year.
Cheap on paper
JD clearly has the challenge of navigating what he describes as a “volatile trading environment.” Consumer spending remains weak in key markets. And it faces higher costs after the Budget, with its National Insurance contributions set to rise and changes to the Minimum Wage raising staff costs.
However, could all this be reflected in the company's very low valuation? At the current price, the retailer trades on a forward price-to-earnings (P/E) ratio of 7.4 times. This is well below the FTSE 100 average of 14.2 times.
Meanwhile, JD stock is trading with a potential price-to-earnings growth (PEG) ratio of 0.9. A figure less than 1 implies that stock is undervalued relative to expected earnings.
That said, these figures are based on expected earnings growth of 8% this year. City forecasters could be cutting their growth forecasts after today's update.
A top buy?
Ultimately, I think today's drop below 100p could represent an attractive level to open a position.
This is because I invest for the long term. And over this period of time, in my opinion, things continue to look good for JD and its stock price.
Despite the current turbulence, demand for sporting goods is expected to grow further this decade in response to changing lifestyles. Grand View Research expects compound annual market growth of 9.3% between now and 2030.
It is a market in which JD is a leader thanks to its strong brand and close working relationships with premium brands such as Nike and adidas. And it is encouraging that the FTSE firm continues to expand rapidly to maximize this opportunity. It opened another 79 stores worldwide in the third quarter.
I'll be looking to add some stocks to my portfolio in the coming days.
