Down 23% in 2024! I think I’ve just bagged myself a FTSE 100 bargain

Taking advantage of a significant pullback in its share price this year, our writer’s recently taken a position in this FTSE 100 member.

| 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.

many happy international football fans watching tv

Image source: Getty Images

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.

A recent trip to the Cheshire Oaks outlet shopping centre resulted in me unexpectedly taking a position in JD Sports Fashion (LSE:JD.), the FTSE 100 sports/fashion retailer. Buying shares was the last thing on my mind but I was persuaded by what I saw.

Of the 140 stores on-site, three had queues to get inside.

The popularity of Crocs and Birkenstock didn’t surprise me. But the large number of shoppers waiting outside both of them was partly due to the small size of their stores. However, it was the fact that people were prepared to wait to enter Nike (NYSE:NKE) — possibly the largest shop on site — that got me thinking.

God of victory

The apparent popularity of the American sportswear brand appears to buck a wider trend. In recent years, Nike’s decided to concentrate on selling through its own stores directly to the consumer (DTC) rather than via third parties, like JD Sports.

However, on 27 June, the company revealed that during the three months ended 31 May 2024, its DTC sales fell 8%. On the same day it also announced a cut in its 2025 sales forecast.

The news caused a 20% fall in its stock price. It’s now only 16% higher than when the pandemic was wreaking havoc.

Despite the queues in Cheshire, some industry experts claim that Nike has lost its way.

It appears to rely too much on its legacy brands. For example, Michael Jordan last played an NBA basketball game in 2003. Does anybody under the age of 35 really know who he is?

A better idea?

The JD Sports share price has undoubtedly been affected by Nike’s problems. It fell 5% when the American company provided its gloomy update in May. It’s now 30% lower than its 52-week high.

Created with Highcharts 11.4.3JD Sports Fashion + Nike PriceZoom1M3M6MYTD1Y5Y10YALL15 Aug 201928 Feb 2025Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '250www.fool.co.uk

This isn’t surprising given that estimates suggest Nike accounts for 50%-55% of JD Sports’ revenue. But the retailer is more than just one brand.

Nike’s strategy has opened the door for some lesser-known rivals to gain market share. Castore, On Running and Hoka are the new kids on the block. JD Sports sells all three, as well as Crocs and Birkenstock which are also in vogue at the moment.

And despite its problems, my visit to Cheshire confirms that Nike’s products remain popular. By stocking these, along with established favourites like Adidas, Puma and New Balance, I think JD Sports is well positioned to cover all budgets and demographics.

In addition, I’m sure the Olympics will have boosted sales in the short term.

Some concerns

But there are risks. The company operates 3,400 stores in 38 countries which is a logistical nightmare. And these account for 75.7% of sales, so JD remains vulnerable to pure play online retailers who don’t have to pay property taxes.

In addition, its dividend is miserly which means many income investors will look elsewhere.

However, with a forward price-to-earnings ratio of 9.4 — below the FTSE 100 average — I believe now’s a good time for me to buy.  

I therefore hope to capitalise on JD Sports’ strong track record in growing its earnings, both organically and through acquisition.

Source: company website / PBT = profit before tax

The company’s due to release its first-half results later this month (August). These should give me an early indication as to whether I’ve made the right decision.

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.

James Beard has positions in JD Sports Fashion. The Motley Fool UK has recommended Nike. 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

Here’s how Warren Buffett’s 2024 letter to shareholders can teach us to be better investors

The latest 2024 letter from Warren Buffett is a bit shorter than previous ones, but it's still packed with words…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Only 28% of Gen X are on track for a comfortable retirement! Could buying UK stocks help?

Looking for ways to supercharge your retirement fund? Investing in UK stocks is one path I think deserves serious consideration.

Read more »

Investing Articles

Here’s the 1 thing everyday FTSE investors have over billionaire fund managers

Our writer discusses a key advantage that retail FTSE investors with Stocks and Shares ISA accounts have in the stock…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Are Tesco shares the ultimate FTSE ‘Steady Eddie’?

Harvey Jones says watching Tesco shares climb steadily upwards is balm for the soul. But will the FTSE 100 grocer…

Read more »

Investing Articles

These 5 problems could hit the Barclays, NatWest, and Lloyds share prices in 2025!

The Barclays, NatWest, and Lloyds share prices have surged between 55% and 102% over the last 12 months. But could…

Read more »

Investing Articles

Up 18% in February! Should investors consider this for their Stocks and Shares ISA in March?

Harvey Jones wonders if soaraway FTSE 100 bank Standard Chartered would made a nice addition to a balanced Stocks and…

Read more »

Mature people enjoying time together during road trip
Investing For Beginners

Have money in a Cash ISA? Here are 3 reasons to consider investing in the stock market instead

History shows that over the long term, the stock market tends to deliver much better returns than the interest from…

Read more »

Investing Articles

What on earth is going on with the Nvidia share price lately?

The Nvidia share price has been all over the place in February. Does this tempt our writer to add the…

Read more »