This FTSE 100 stock has tumbled in price. Here’s why I’d buy it now!

This FTSE 100 stock has tumbled to nearly half of its value since the start of 2022. This presents a good buying opportunity for Henry Adefope.

| 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.

FTSE 100 stock JD Sports Fashion (LSE:JD) is one of the best examples of a volatile company within the index. Its share price has tumbled to nearly half of its initial value since the beginning of 2022. That’s a steep fall in a short space of time!

On the surface, there are obvious reasons why the share price of the sports retailer has declined so heavily since the New Year.

A financial penalty from the Competition and Markets Authority (CMA) connected to its 2019 merger with Footasylum was an unwelcome New Year’s gift in 2022. Furthermore, it is plausible to think that the higher cost of living and energy bills we have all been contending with since the turn of the year will mean less spending on non-essential retail purchases.

Both these factors could be reasons why the stock is out of favour with investors currently. However, has the sell-off been overdone? Possibly.

Could this be a bargain?

As a value investor, I like to include stocks in my portfolio that trade at a big discount to their intrinsic, fair value. Currently, analysts reckon the fair value for the stock should be around 305p (more than double the current price range it’s sitting at). A broad consensus of analysts also expects the JD Sports stock price to climb from its current low, with a consensus price target of 255p. This, combined with bullish earnings forecasts, suggests the stock could be a bargain for me right now.

In addition, its financial fundamentals demonstrate a company making operational improvements. It has bolstered its balance sheet and retained more cash since the pandemic. To top that, in a recent trading update, the company raised its annual profit outlook for 2022.

The risks

The company’s dividend yield is a stingy 0.2%, lagging the FTSE 100 average of 3.75%, and its payouts to investors relative to its share price has been declining since 2017, well before the effects of the pandemic and inflation. It is a stock that is unlikely to provide me with any meaningful income in the medium term.

Meanwhile, its price-to-earnings ratio (share price relative to its earnings per share) is around 16x, which is a higher multiple than the averages of both the FTSE 100 specialty retail sector that it belongs to, as well as the broader market index. In short, the stock may already be expensive.

Overall, JD Sports is not the only FTSE 100 specialty retailer that has taken a financial hit. In fact much of the sector has lost around of third of its value since the start of the year, with Dunelm Group, Halfords Group and Moonpig all faring similarly.  

Once cost of living pressures subside and discretionary spending returns, I believe JD Sports stock will be one of the biggest beneficiaries. The current price range looks like an attractive entry point, and is why I am strongly considering an opportunistic investment in the stock before the end of May.

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.

Henry Adefope has no position in 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

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

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

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »