After plunging nearly 40%, I’m considering buying this bargain FTSE 100 stock

2024’s proving to be an annus horribilis for FTSE 100 retailer JD Sports Fashion (LSE: JD). As I type, the shares have plummeted a gut-wrenching 38%.

But I reckon this has the potential to be an excellent contrarian buy… in time. Let me explain why.

Share price tumble

JD’s fall from grace isn’t wholly unwarranted. This was never the sort of company that was going to shine during tough economic times where just paying the bills takes priority over a flash new pair of trainers.

But the negative reaction to a recent trading update felt seriously overdone, to me. Last week, JD revealed that pre-tax profit for FY25 will likely come in at the lower end of its previous guidance range of £955m-£1.035bn.

This was after sales dropped 0.3% over the 13 weeks to 2 November — attributed to higher promotional activity, warmer-than-usual weather and reduced demand as shoppers in the US awaited the outcome of the US election.

Now, I don’t know about you but none of the reasons mentioned above justify such a fall. Non-seasonal weather, for example, has always been a potential risk for any clothing retailer.

I also wouldn’t be surprised to see trading recover in the US now that Donald Trump has secured the keys to the White House. A far worse situation would surely have been if there had been no clear winner.

It could get worse

Of course, it’s worth bearing in mind that a share price revival may take longer than expected.

In the near term, a lot will depend on just how well JD trades over the all-important festive period that accounts for roughly a third of annual sales. Any evidence that shoppers are still being cautious in the face of rising inflation — another trading update’s expected in January — could drive even more investors to jump ship.

Even if it manages to deliver a better-than-expected performance over the next few weeks, many big UK retailers including JD now need to navigate the recent increase in national insurance contributions (NICs) announced by chancellor Rachel Reeves at the end of October.

There’s still a lot to like

But, again, these don’t feel like insurmountable issues for those investing for the long term. Moreover, I think there’s a lot to like about this business.

First, there’s the growth strategy. This is a £5bn juggernaut that’s rapidly expanding overseas, particularly in the US where it now boasts 1,200 stores. That bodes well considering the world’s largest economy seems to continue motoring along nicely.

I also reckon that JD may be a safer option than buying into a specific brand whose wares it sells, such as Nike or Adidas. The former has been having a torrid time of late and losing market share to more innovative rivals. Analysts currently expect this to continue into 2025.

And then there’s the valuation. A price-to-earnings (P/E) ratio of just seven is far below the average among stocks in the Consumer Cyclical sector and the UK market in general. It also looks an absolute bargain compared to the stock’s five-year average P/E of nearly 20!

Taking all this into account, I find myself running out of excuses not to pull the trigger and I’ll initiate a position in this top-tier titan very soon.

The post After plunging nearly 40%, I’m considering buying this bargain FTSE 100 stock appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Nike. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.