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Is JD sportswear (LSE:JD) a value stock? Is it a growth stock? Probably both, but considering how the stock is currently taking off, who honestly cares?
Whatever label investors put on the FTSE100 As a sportswear and sneaker retailer, one thing is certain: JD Sports’ share price is having a big moment.
Last week, the stock was up 17.66% and for the month, it was up 24.53%. This is great news for me because I bought the shares on January 22nd to take advantage of what I thought was an unmissable buying opportunity.
Sports star?
Back then, it was definitely a value stock. JD shares plunged by more than a third after poor Christmas sales prompted a profit warning. When I buy companies on bad news, I can get them cheap, but that’s risky because more bad news often follows. Fortunately, JD has recovered quickly.
On August 22, the board reported a solid 2.4% increase in comparable sales in the second quarter, boosted by the store-opening program in North America and Europe, reversing the 0.7% sales decline in the previous quarter. Sales in the UK fell 0.8%, but this was a significant improvement from the 6.4% decline in the first quarter.
I’ve wanted to buy JD stock for years because the company appears to have made a breakthrough in the U.S. and has tremendous growth opportunities. After acquiring Alabama-based retailer Hibbett in the second quarter, the company now has 1,169 stores in 36 states. That number was further increased by 85 new store openings during the quarter.
JD Sports is not out of the woods yet, although the company is on track to meet its forecast pre-tax profit of £955-1.035 billion (excluding Hibbett), with CEO Régis Schultz rightly remaining cautious given the current volatility.
There is a possibility that the US could enter a recession, which would also affect the UK and Europe. We keep our fingers crossed that the US Federal Reserve manages a soft landing.
JD shares may be taking a breather after last week’s brilliant performance. However, I still think there is value here, with the stock trading at 11.68 times earnings, well below the FTSE 100 average of 15.3. Shares are up a relatively modest 12.09% over the past 12 months. Over the past three years, they’re down 25.03%.
Another risk is that the coaching market is no longer as strong as it used to be. NikeIt is an important partner of JD, together with Adidas. One day, these two giants may find other ways to market, a constant threat that looms over JD.
The dividend yield is disappointing at just 0.6%. With a coverage of a whopping 13.5%, the board has plenty of room for more generosity.
I noticed that return on equity was steadily declining even before the profit warning. However, it has recovered recently. Let’s see what the charts say.
Chart by TradingView
After last week’s strong run, JD Sports shares may sit idle for a while, and with luck I’ll have time to stump up some cash and buy more while they’re still cheap.
