The retail sector can be a minefield for investors, with fashion e-commerce darlings rising and falling in the blink of an eye. Many will remember the rise of the ASOS share price in 2021 as e-commerce boomed. But it has been on a steady slide since. Amid the noise and volatility, I suspect there’s one retail giant that might be on a more sustainable path to reliable, long-term returns: JD Sports Fashion (LSE:JD.).
A long-term plan
While the ASOS share price may have captured the market’s attention in recent years, I think a deeper look at JD Sports suggests this retail titan could be a far more appealing proposition. With an impressive track record, rock-solid financials, and strategic vision, the firm appears poised to grow sustainably as others in the sector struggle.
Established in 1981, the firm has weathered countless storms. Unlike many of its peers, this company has been able to grow market share steadily, delivering an astounding 188% surge in earnings over the past year alone.
The numbers
For me, one of the most compelling aspects here is the valuation. The shares are currently trading at a healthy 44% discount to a discounted cash flow (DCF) estimate of fair value. Of course, there’s likely a reason the market isn’t pricing this closer to fair value, with enormous competition and uncertainty in the sector, but I think there’s potential here.
But the real kicker? The company’s annual earnings are forecast to grow by a steady 12% for the next five years. That kind of consistent growth is the stuff that can turbocharge a portfolio for years to come. And with a diversified business model spanning sports fashion, outdoor wear, and more, there’s a strong foundation for that growth to continue.
When it comes to financial strength, the firm leaves many of its rivals in the dust. The company’s balance sheet is rock-solid, with a small 4.5% debt-to-equity ratio. This gives a tremendous amount of flexibility to take risks, make acquisitions, and generally focus on the future.
A risky sector
The business is clearly not immune to challenges that can arise, such as sharp changes in consumer preferences, supply chain disruptions, and intense competition. In terms of reported website traffic, the company seems to be on a negative slide, with about a 10% drop over the last year. Plenty of consumers are now shopping almost exclusively via social media platforms, which could easily spell the end of many traditional retail outlets if management can’t adapt.
I feel like there’s also a lack of excitement for shareholders here. With a dividend yield of just 0.73%, and a sector that isn’t exactly sparkling, many might simply look to other places for a new long-term investment.
Lots of potential
Yet in a world where retail giants can rise and fall with dizzying speed, I feel that JD Sports can stand tall as a beacon of consistency and potential, especially when compared to others in the sector.
With a solid track record, strategic vision, and attractive valuation, I think the business presents a compelling opportunity to those willing to stick around for the long term. I’ll be adding it to my watchlist.
