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Is JD Sportswear (LSE:JD) a value stock? Is it a growth stock? It's probably both, but given the current state of play, frankly, who cares?
Whatever label investors decide to put on the… FTSE 100 Index Sportswear and footwear retailer, one thing is certain: JD Sports' share price is at an all-time high.
Last week it was up 17.66% and this month it is up 24.53%. For me, this is brilliant news because I bought its shares on January 22nd to take advantage of what I thought was an unmissable buying opportunity.
Sports star?
At the time, it was a value stock. JD shares plunged by more than a third after poor Christmas sales triggered a profit warning. Buying companies on bad news allows me to buy them cheaply, but it is risky because more bad news is often to come. Fortunately, JD has recovered at a rapid clip.
On August 22, the board reported a solid 2.4% rise in comparable sales for the second quarter, driven by its store launch programme in North America and Europe. This reversed the 0.7% drop in sales in the previous quarter. Sales in the UK fell 0.8%, but that was a big improvement on the 6.4% drop in the first quarter.
I had wanted to buy JD stock for years because the company appears to have managed to break into the US market, which gives it a huge growth opportunity. After completing the acquisition of Alabama-based retail chain Hibbett in the second quarter, it now has 1,169 stores in 36 states. This figure was boosted by 85 new openings during the quarter.
JD Sports is not out of the woods, despite being on track to hit its forecast pre-tax profit range of £955m to £1.035m (excluding Hibbett). Chief executive Régis Schultz remains cautious amid the current volatility.
There is a possibility that the US could enter a recession, which would drag down the UK and Europe as well. Let's hope the US Federal Reserve manages to achieve a soft landing.
JD shares can take a breather after last week's spectacular performance. However, I still think there is value here, with the stock trading at 11.68 times earnings. That's comfortably below the FTSE 100 average of 15.3 times. The stock is up a relatively modest 12.09% over 12 months. In reality, it's down 25.03% over three years.
Another risk is that the sneaker market will not have the strength it once had. Let's look at the problems that plague NikeIt is a key partner of JD, along with AdidasOne day, these two giants may find other routes to market, posing a constant threat to JD.
The cumulative dividend yield is disappointing at just 0.6%. With a coverage of 13.5%, the board has plenty of room to be more generous in this regard.
I noticed that their return on equity was falling steadily even before the profit warning, but it has picked up lately. Let's see what the charts say.
TradingView Chart
After last week's strong performance, JD Sports shares could remain dormant for a while. Hopefully, that will give me time to raise some cash and buy more while they are still a good value.