The cheapest UK stock in my ISA is…
I generally tend to steer clear of really cheap UK stocks. That’s because they’re often cheap for a reason. I do own a few value stocks in my portfolio though. Here’s the cheapest of them…
A dirt-cheap stock
The stock with the lowest valuation in my portfolio today (by a wide margin) is JD Sports Fashion (LSE: JD.). It’s a retailer of athletic footwear and clothing that operates globally.
Currently, it trades for around 76p. Given that City analysts expect the company to generate earnings per share of 11.8p for the financial year ending 31 January 2026, it’s trading on a price-to-earnings (P/E) ratio of about 6.4 at present.
That’s a very low valuation. For reference, the median P/E ratio across the FTSE 100 index (of which JD is a part) is about 13.5.
So currently, the company is trading at a massive discount to the market.
Is this stock mispriced?
Does the stock deserve to be trading at such a large discount to the market? I don’t believe so.
It sells in-demand products from top brands including the likes of Nike, Adidas, On, and Hoka. And looking ahead, it’s well placed to benefit from several powerful trends such as the casualisation of fashion and the increased focus on exercise and wellness.
It’s also a company with an attractive growth strategy. In the years ahead, it’s aiming to open 200-250 new stores a year across the world – these should boost its top line.
Note that management appears to be confident about the medium-term growth story. “We look forward into the medium term with confidence that we can continue to outperform the market, improve our profit margin and create significant value for our shareholders,” said CEO Régis Schultz in May.
On top of this, JD has a great track record when it comes to growth and profitability. Over the last five years, revenue has climbed from £6.1bn to £11.5bn (helped by acquisitions) while return on capital employed (a key measure of profitability) has averaged about 13%, which is decent.
Additionally, the company has a rising dividend (the yield is only about 1.3%) and it’s doing share buybacks. So overall, there’s a lot to like.
Why is it so cheap?
Why is it trading like it’s a disaster of a company? Well, there are a few reasons.
One is that recently, growth has slowed as consumers have reined in their spending. This has led to several profits warnings, which have hurt sentiment towards the stock.
Another is that a lot of investors are concerned that we could be able to see more consumer weakness. In other words, growth could slow further.
Tariffs are also a concern for many. These are creating some uncertainty.
Finally, there are some concerns about debt. As a result of recent acquisitions, debt on the company’s balance sheet has increased significantly in recent years (net debt was about £3bn at the end of January).
Patience required
These are all valid risks. This is not a company that’s guaranteed to do well in the years ahead.
But I do think the stock is a little mispriced at the moment. I think there’s value on offer and I believe the stock is worth considering for anyone who likes value stocks and is happy to wait patiently for a recovery.
The post The cheapest UK stock in my ISA is… appeared first on The Motley Fool UK.
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More reading
- The FTSE 100 has outperformed the S&P 500 this year. Can it last?
- What’s going on with the JD Sports share price?
- 2 FTSE 100 stocks I believe could outperform over the next decade!
- The JD Sports share price may be down but I don’t think it’s out!
- Forecast: in 12 months this dirt-cheap FTSE growth share could turn £10k into…
Edward Sheldon has positions in JD Sports Fashion. The Motley Fool UK has no position in any of the shares mentioned. 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.
