I’m happy to see JD Sports (LSE: JD.) is currently in value stock territory because it gives me a great chance to snap up more shares for my holdings! Let me break down what’s been happening and why I’m using this opportunity to strengthen my position.
Volatility presents opportunity
Let’s dive into JD’s share price first. As I write on Thursday, 14 December, the shares are trading for 171p. At this time last year, they were trading for 122p, which is a 40% increase. However, this doesn’t tell the whole story.
Macroeconomic volatility hurting markets has prevented the shares from climbing, if you ask me. They’re down 8% from 52-week highs of 186p in February to current levels. Although, they seem to be edging towards that level again so I should be quick in buying further shares.
A cost-of-living crisis has dampened consumer spending, as well as a turbulent economic outlook. In turn, JD Sports shares haven’t taken off these past nine months.
My view on the current opportunity
The first aspect of JD’s shares that instantly stood out to me is the valuation. The shares trade on a price-to-earnings ratio of 15. The FTSE 100 average is 14. However, I’m a firm believer of paying a fair price for a quality company.
Next, JD shares would boost my passive income stream. A dividend yield of less than 1% is not the highest. However, if the business can continue to grow at historical rates, I’d expect performance and payouts to increase. I’m conscious, of course, that dividends are never guaranteed and past performance is not an indicator of the future.
Moving on, JD’s interim results released in September showed me the business has been resilient in the face of tough conditions. Full-year expectations are still on track and business reported that organic sales growth has increased by 12% compared to the same period last year. Furthermore, all of its territories have reported double-digit growth which is pleasing to see.
I’m really excited to see what comes of JD’s growth plans. Namely its expansion into the North American market, which seems to be going well at present, as well as its foray into the Middle East. It is the ‘King of Trainers’ in the UK, but can it conquer these other territories? I’m strapped in for the ride!
Risks and final thoughts
One thing I noticed from my research is that net margins seem to be tighter than ever. They’re down nearly 50% compared to the previous fiscal year. This could hurt the firm’s bottom line which underpins growth plans as well as potential payouts. However, this was to be expected somewhat due to rising costs linked to higher inflation.
Another potential risk is that of JD’s reliance on its excellent relationship with sportswear behemoth Nike. The link up accounts for between 10% and 20% of JD’s annual footwear sales. Any issues in this lucrative partnership could hurt JD Sports.
I’m buoyed at the fact JD shares haven’t climbed too much so I’m planning to imminently snap up more shares. I reckon they’ll climb higher once macroeconomic volatility subsides.
