JD Sports (LSE: JD.) shares haven’t started 2024 well. In the first week of the year, they fell around 28%.
I’ve owned these shares in the past and made good money from them. Is this a great opportunity to buy them for my portfolio again? Let’s take a look.
Profit warning
The reason the shares fell last week is that the athletic footwear retailer posted a profit warning.
On Thursday (4 January), the group said that for the 22 weeks to 30 December 2023, like-for-like growth was just 1.8% – below its expectations.
Meanwhile, it lowered its full-year profit forecast. It now expects its pre-tax profit for the year ending 3 February 2024 to be £915m-£935m versus an earlier forecast of around £1bn.
The company blamed a slowdown in consumer spending, subdued demand for apparel amid milder weather conditions, and higher costs for the performance.
It noted that, due to a “more cautious consumer“, it had been engaging in more promotional activity.
Low valuation
After last week’s share price fall, the stock certainly looks cheap.
For the year ending 31 January 2025, analysts expect JD to generate earnings per share of 13.9p. This earnings forecast will probably come down in the weeks ahead due to the recent profit warning. But using this figure for now, the forward-looking price-to-earnings (P/E) ratio here is only 8.5.
That seems like an attractive valuation for a company that:
Has an excellent long-term growth track record (sales have more than tripled over the last five financial years).
Sells popular brands such as Nike and Adidas.
Is quite profitable.
Is exposed to big trends such as the casualisation of fashion and the increased focus on exercise.
So, there could be some value on offer here.
Buying now could be risky
Having said that, it’s always risky to buy a stock immediately after a profit warning.
The tough conditions the company is facing could persist for a while. The lagged effect of higher interest rates may not have fully kicked in yet. And consumers are preferring to spend their money on experiences rather than goods right now. So, there could potentially be more profit warnings on the way here.
The share price chart also looks quite ugly. When the shares fell last week, they crashed below their 50-day and 200-day moving averages. So, they’re no longer in a short-term or long-term uptrend. I think there’s a chance the share price could head lower before it rebounds.
My move now
In light of the profit warning and sharp share price fall, I’m going to hold off on buying JD Sports shares for now.
They do look cheap. But I’m not going to try and ‘catch a falling knife’.
I’d rather wait and see some stabilisation (or the start of a rebound) in the share price so that I don’t get my fingers burnt.
The post Should I buy JD Sports shares after a 28% fall? appeared first on The Motley Fool UK.
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More reading
If I’d invested in JD Sports shares one month ago here’s what I’d have today
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Why the JD Sports share price is down 24% today
Edward Sheldon has positions in Nike. 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.
