This FTSE 100 retailer is up 50% in six months – but is it now overvalued?

Conor Coyle considers whether this FTSE 100 (LON:INDEXFTSE: UKX) high street retailer can continue its impressive performance.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The demise of the high street has long been forecast. According to some, in a matter of a few years we will all be making most of our purchases from the comfort of our sofa or on the train home from work.

But while the naysayers have been right about many traditional UK retailers, some have impressively bucked the trend, none more so than sportswear provider JD Sports Fashion (LSE:JD.)

In the last six months alone, its shares have risen just under 50%, outperforming the FTSE 100, which has gained little more than 1% during the same time.

JD’s performance has earned its a place within the the UK’s primary stock index, after it was promoted to the FTSE 100 in June. But the question now is, following growth of more than 800% in five years, how much higher can the share price go?

Diversification

One reason why, I believe, JD shares have performed so strongly in recent years is its ability to diversify its product range, moving away from simply selling sports clothes towards more casual fashion and offering a variety of well-known brands and exclusives in its shops.

In a brand-focused world, retailers that can attract the most in-demand labels have an in-built advantage. The development of strong relationships with key brands such as Nike and Adidas has been a core part of the firm’s growth.

While shares of rival Sports Direct have come under severe pressure for many reasons, JD’s success has been in stark contrast to Mike Ashley’s business, which is considered a lower quality alternative in terms of both product and customer experience.

Recent earnings reports have served only to back up the faith of long-term investors in the chain and they will now be reaping the rewards following the meteoric rise. In the most recent quarter, like-for-like sales grew 10%, with a staggering 80% of sales coming from bricks-and-mortar stores.

The average growth in annual profits for the last five years has been 31%, although some are asking at this point just how much room there is for further growth.

International expansion

While another 800% jump in the JD share price over the next five years seems unrealistic, there is still much to suggest that it can continue on a more incremental basis.

Key to that is the potential to expand internationally, with the company now counting on 31 more stores across mainland Europe, Asia and the US than it had six months ago.

In terms of dividends, JD’s yield based on a current share price of 710p is 0.3%, hardly one to get the pulses racing for income investors. Trading on a P/E ratio of more than 25, it may not appear to represent the best value for some investors either.

That high P/E ratio is based on its impressive outperformance though, and as an investor looking for growth prospects I’d certainly look to add it to my portfolio.

With the rest of the UK retail sector struggling to cope with the weight of a massive consumer shift, as well as the difficulties associated with Brexit, JD is clearly doing something right amid testing times.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

conorcoyle has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »