My favourite FTSE 100 growth share just got even cheaper! Is it now an unmissable bargain?
JD Sports Fashion (LSE: JD) is my favourite growth share, but sometimes I wonder why. The self-styled ‘King of Trainers’ has given me a right kicking since I bought it a couple of years ago.
I jumped on the FTSE 100 stock after it issued a shock profit warning following poor Christmas 2023 trading, thinking this was finally my chance to get it at a decent valuation. It was cheap then, and it’s cheap today.
JD Sports’ shares struggle
A second Christmas disappointment in 2024 knocked the stuffing out of it, yet I kept faith. The JD Sports share price is down 31% over 12 months and almost 45% over five years. At one point, I was sitting on a 30% loss.
A strong run after Donald Trumpâs âliberation dayâ tariff pauses on 9 April almost brought me back to parity, helped by judicious averaging down as I bought more stock at the lower price.
But now it’s falling again, down 14% in a single week. That makes it the second worst performer on the FTSE 100, after falling knife WPP.
So I’ve taken yet another shoeing, just when I thought JD was about to start making tracks. There was no obvious company catalyst. The shares did go ex-dividend on 30 October, although the modest 1.15% trailing yield hardly warrants such a vicious drop.
My immediate view is that investors are worried about the US consumer. JD Sports now generates 40% of its revenue from across the Atlantic. The S&P 500 may be booming, but thatâs mostly tech stocks. Traditional sectors are struggling and tariff risks are driving up import prices.
Shore Capital admitted to âscratching our heads looking for a catalystâ, but pinned it on cautious US Federal Reserve comments about consumers and fears of potential UK tax rises in the upcoming Budget.
Cheap and compelling
To me, this looks like a potential buying opportunity. Half-year results, published on 24 September, showed a 20% rise in sales, although like-for-like growth was only 2.5%. Thereâs been no update since, yet the shares are cheaper, with the price-to-earnings ratio falling to just 6.8 (the FTSE 100 average is 18). JD’s P/E was 8.3 when I last looked a month ago and I thought it looked good value then.
Berenberg reiterated its Buy rating on 25 September, citing low valuation and recovery potential. Shore Capital also sees recent weakness as a buying opportunity, highlighting a strong balance sheet, good margins, and healthy cash generation.
Analyst optimism
Seventeen analysts give JD Sports one-year targets, producing a median of 121p. If that came off, it’s a massive potential 40% gain from today.
Experience tells me the stock’s likely to remain volatile, as the cost-of-living crisis isnât over. Consumer stocks are highly sensitive to sentiment. Also, JD Sports remains youth-focused. Jobs are tough to find for younger people right now, which means they’ve got less money to spend.
I still think this stock has huge cyclical recovery potential. It’s well worth considering at today’s low, low valuation. But investors must brace themselves for a few knocks and scrapes along the way.
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Harvey Jones 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.
