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The year 2024 seems to be a really sad year FTSE 100 to share JD Sports Fashion (LSE: JD.).
On January 4, JD started to stink with a shocking profit warning that sent its share price plummeting. After a strong recovery, the retailer has fallen again since late September, partly due to the collapse of the UK Budget in October.
And it hit a new 2024 nadir today (21 November), with another chilly trading statement sending its shares below 100p. At 96.5p, JD is down 15% in Thursday’s trading, and 40% year to date.
I wonder, then, if this year’s price drop represents an attractive dip buying opportunity for long-term investors like me. Let’s take a look.
Predictions have been discontinued
Lately, JDs have been hit by a toxic mix of bad weather, high advertising activity, and weak consumer spending ahead of the US presidential election.
At group level, like-for-like sales fell 0.3% in the 13 weeks to 2 November, the business said.
In the UK, comparable revenue fell 2.4% year-on-year, while in the US sales fell 1.5%. Combined, these areas account for two-thirds of the group’s sales.
Sales in Asia Pacific fell by 3.8%. However, strength in Europe provided some rare comfort, with income rising 3.5%.
JD’s weak third-quarter result means it now expects a full-year profit “at the bottom end” of its direction. Profit before tax and adjusted items was said to be £955m to £103.5m, although it was up from £917.2m last year.
It’s cheap on paper
Clearly JD has a challenge navigating what he describes as “changing trading environment.” Consumer spending remains weak in key markets. It is also facing higher costs following the Budget, with its National Insurance contributions set to rise, as well as changes to the Minimum Wage which will increase labor costs.
However, can all this be reflected in the company’s low rating? At today’s price, the retailer trades at 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 shares trade with an expected price-to-earnings growth (PEG) ratio of 0.9. A ratio less than 1 suggests that the estimated dividend is related to the expected profit.
That said, these figures are based on a forecasted 8% wage growth this year. City forecasters may reduce their growth forecasts following today’s update.
Top buys?
On balance, I think today’s drop below 100p would represent an attractive level for me to open a position.
This is because I invest for the long term. And at this point, things continue to look good in my view for JD and its share price.
Despite the current upheavals, the demand for athletic products is expected to grow this decade due to changing lifestyles. Grand View Research expects the market to grow at a compound annual rate of 9.3% between now and 2030.
It is a market in which JD is a leader due to its strong brand and strong working relationships with leading brands such as Nike again Adidas. And encouragingly, the FTSE company continues to grow rapidly to capitalize on this opportunity. It opened another 79 stores worldwide in the third quarter.
I will be looking to add some stocks to my portfolio in the coming days.
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