The FTSE 100 index enjoyed a decent November, gaining almost 5% for the month. However, there was one standout performer that caught my eye and I might buy. JD Sports Fashion (LSE:JD) shares rallied 26%, massively outstripping the index. Given that there were no major trading updates released from the company during the month, why did it see a sharp rally?
Shifting management goals
One factor I think definitely helped the share price in November was the proposed change of the remuneration for senior management. Shareholders have been unhappy for some time about the fact that large cash bonuses historically were paid out, instead of focusing pay around share-based incentives.
In a formal announcement, the changes to the remuneration policy will be put to a shareholder vote in a couple of weeks’ time.
This might sound like a minor detail, but it actually could really help the business moving forward. If the bulk of executive pay is linked to the share price performance over time, it ensures the goals of management and shareholders are the same. I think this is a smart move. Instead of having the focus on short-term profit enhancement for a fat bonus, the business should have a better long-term direction.
Strong Q4 expectations
Retailers are heavily dependent on Q4 sales. This includes Black Friday, Cyber Monday, Christmas and Boxing Day sales. Early indications from the broader industry show that the quarter could be better than most expected.
For example, Amazon reported that the Thanksgiving shopping weekend was a record-breaking one in terms of sales. I feel this is a good barometer for customer spending, given the size and reach of Amazon.
The pessimism-turned-optimism regarding Q4 sales has flowed through to other retailers, with JD Sports also gaining. It’s still too early to tell how the December trading period will go. But with many having low expectations given the cost-of-living crisis, the hurdle to beat isn’t tough. This could allow further gains in the share price over the next month or so.
FTSE 100 growth stocks might be back
Even though I might be getting slightly ahead of myself, I do think that growth stocks like JD Sports might be starting to come back into the spotlight.
For most of this year, growth stocks have been shunned by investors due to the perceived risky nature. Further, with global growth expectations being trimmed rapidly earlier in the year, profit and revenue potential for high growth stocks also suffered.
However, I feel that sentiment is now starting to turn. Whether this is the fact that we can’t get any glummer about the outlook is one point. Or it could also be that investors are realising that some growth stocks look cheap given the sell-off this year.
Either way, I think the jump in the share price for JD Sports speaks to better positivity in the market in recent weeks.
