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One company I have been following closely in the stock market recently is JD Sports Fashion (LSE: JD.).
The stock has struggled severely in 2024 after the sportswear giant issued an unexpected profit warning in early January. Today (May 31), they fell another 5%.
Now I'm wondering if it might be time to buy the dip on this fall from grace. FTSE 100 stock.
Challenging times
The latest hit to JD's share price came today after the company released its unaudited annual results and provided a first quarter trading update.
For the 52 weeks to January 27, revenue rose 2.7% year-on-year to £10.5bn. However, pre-tax profit before adjustment items fell 8% to £912.4m. This was slightly below what the market expected.
Adjusting for sales and the profit from new store openings (more than 200), sales growth was actually 9%, the company said.
At first glance this doesn't seem so bad to me. I mean, we've been living through an extraordinary period of inflation and high interest rates. Management called this “a very challenging market“, which I don't think is an exaggeration at all.
Looking ahead to this year, JD maintained its forecast for adjusted pre-tax profits of between £955m and £1.03bn. CEO Régis Schultz said: “We have started the new financial year with the first quarter in line with our expectations in a volatile market and are on track to meet our full-year earnings guidance.“.
The company plans to open more than 200 new stores during the current financial year.
A coiled spring?
Prior to this update, the share price had risen around 15%. This suggests that the market had been anticipating some positive news today. Unfortunately, that was not the case.
However, I still think we could see a big rally in the stock at some point this year. Look at the American rival shoe drawerwhose shares soared 15.5% yesterday after slightly better than expected first quarter results.
Meanwhile, JD stock appears to be a very good value. It is trading on a forward-looking price-to-earnings (P/E) ratio of around 11.5, which could fall to below 10 by 2026.
Arguably very cheap for a growth stock, which I would still classify as JD, despite the recent lack of breakneck growth. It appears to be in or entering negotiation territory.
my verdict
The main risk is the current weakness in consumer spending. Any downward adjustment to full-year earnings guidance could send the stock price even lower.
However, in the long term I remain optimistic about the company's prospects. The twin trends of casualisation and increasingly active lifestyles (more gym and sports) should support long-term sales growth, both in the UK and abroad.
Furthermore, in the short term, this summer we will have the Euro Cup and the Olympic Games in Paris. For the first time, England participates in a football tournament as the sole favorite. Scotland has also qualified.
Surely these big sporting events can only be good for business.
The only issue stopping me from adding stocks to my portfolio today is the small 0.76% dividend yield. There are currently other cheap FTSE 100 shares offering returns of 7% to 9%.
Of course, this problem is specific only to me. If I weren't worried about increasing my passive income, I would certainly consider taking advantage of the dip to purchase shares of JD Sports.
