So brokers reckon a FTSE 100 growth stock that’s plunged 50% over five years, and 30% in the last 12 months, will turn things around on a massive scale. I hope they’re right because I hold the stock. But I’m sceptical.
I like buying stocks when they’ve fallen out of favour, and that’s why I bought sportswear and trainer specialist JD Sports Fashion (LSE: JD) this time last year. The board had just issued a profit warning after a disappointing Christmas, and I thought this was an opportunity to get in on the cheap.
All I did got was a heap of worries, as those profit warnings continued to roll in. Yet analysts continue to believe in the former stock market darling.
The share price keeps taking a beating
The 16 brokers offering one-year share price forecasts have produced a median target of just over 131p. If correct, that’s an increase of almost 60% from today. Is this just wishful thinking?
Let’s start with the numbers. JD Sports is currently trading at a rock-bottom price-to-earnings (P/E) ratio of just 6.7, a figure that screams ‘cheap’. The problem is that it was screaming cheap all last year, and only got cheaper.
There’s usually a reason why a stock gets this battered. In JD’s case, it’s clear: falling sales, a declining profit outlook and a nagging concern that trainers and athleisurewear aren’t the fashion force they were.
The company’s recent trading update, released on 14 January, hit confidence again. Revenue for the critical November-December period dropped 1.5%, a big blow during what’s supposed to be the busiest shopping season.
While JD managed to claw back some momentum in December, with like-for-like sales up 1.5%, it wasn’t enough to offset earlier declines.
Adding to my unease, it downgraded its full-year pre-tax profit forecast to £915m-£935m. That’s down from the already-lowered guidance of £955m-£1.035bn. I’m not the only investor wondering if the company’s golden growth era’s over.
So why are analysts so optimistic? JD’s core strategy of maintaining discipline in a highly promotional retail environment has shielded gross margins. While this approach might hurt short-term sales, it positions the company to rebound when market conditions improve.
Can this former FTSE 100 favourite fight back?
The group’s international operations are providing a glimmer of hope. The Sporting Goods and Outdoor segment’s holding up, while stronger growth in Europe and Asia Pacific has partially offset weakness in the UK and North America. Diversification‘s working in its favour.
Finally, there’s the possibility of a broader market rally if interest rates fall and consumer confidence picks up later in 2025. JD Sports shares could lead the charge if spirits rise. No guarantees though.
While we wait, the vultures are circling chief executive Régis Schultz, whose vision of turning JD into a “global sports-fashion powerhouse” keeps receding. A new broom might do some good.
I’m not going to bank my 30% loss. JD Sports has had a major wake-up call. I still think it has a huge opportunity, particularly in the US. Analysts aren’t completely mad. But they’re a lot more optimistic than I am.
The post Analysts reckon this dirt cheap FTSE growth stock can grow 60%! Are they mad? appeared first on The Motley Fool UK.
But this isn’t the only opportunity that’s caught my attention this week. Here are:
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy — and discover:
Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
2 cheap FTSE 100 shares to consider for an ISA in February
3 heavily discounted UK shares to consider buying in February
The FTSE 100 hit an all-time high this week — but I still loaded up on this share!
I think 2025 could be the year these low-P/E FTSE 100 shares come good
I asked ChatGPT to name 3 cheap shares with massive recovery potential – I own two of them!
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.
