Over the past year, shares in JD Sports Fashion (LSE: JD) have lost almost half their value. The 48% decline in the JD Sports share price is painful for me as a shareholder in the retailer.
But, as yesterday’s interim results showed, the business appears to be in rude health. Revenue for the first half grew 14% compared to the same period last year. Although the operating profit for the six months slipped, the company continues to expect headline profit before tax and exceptional items for 2022 will come in at around the same level it did last year. I think that is good, as last year was the strongest performance in JD’s history.
So, is this an opportunity for me to add more shares to my portfolio in the hope of recovery?
JD’s challenges
To begin, I think it is worth considering why the JD Sports share price has fallen so steeply.
I see a couple of reasons. A key one is executive changes. The group’s longstanding executive leader has been replaced this year. After his stellar record of building the company, investors are nervous about what comes next. There is a risk that sales growth could slow. However, the new management is experienced and seems capable. For now at least, I see no specific reason to believe that they cannot continue to guide JD on a successful path.
Another concern is that the worsening economic environment will eat into shoppers’ willingness to splash out on the latest pair of flash trainers. That is a risk, and indeed the company nodded to “widespread macro-economic uncertainty” in its results. But it also struck an upbeat note, for example noting an “encouraging return to positive trading” in the US market.
Opportunities ahead
These challenges are real – but do they justify the JD Sports share price almost halving?
As I see it, the company’s market is likely to continue to experience strong demand. Even if a recession reduces some discretionary consumer spending, I think JD’s core audience is likely to keep wanting to stay up to date with the latest fashion. It has a strong brand and established customer base. The firm’s outstanding growth rate in the past decade shows that it understands how to source effectively, appeal to shoppers and make a profit.
If demand does soften, that could hit sales – although the first-half results show little sign of that happening so far. Other risks including supply chain inflation might also eat into profits. But I think this is a high-quality business with an appealing customer proposition and proven ability operationally.
Why I like the JD Sports share price
Given all that, the stock looks like a bargain for my portfolio. Using last year’s earnings, the company is trading on a price-to-earnings ratio of around 13. It has a strong brand, and is a leading player in a market I expect to see continued growth.
I have been buying JD Sports shares for my portfolio this year in anticipation of recovery and long-term growth. I plan to keep doing so.
