If you’re looking for growth stocks for your investment portfolio, it can be worth looking outside the FTSE 100 index and focusing on stocks within the FTSE 250. Many large-cap companies within the FTSE 100 are struggling for growth at present, yet it’s a different story within the FTSE 250, with plenty of companies in this index generating strong growth year after year.
Today, I’m looking at a growth stock that has been sold off in the recent market pullback. After falling 17% in two months, it now offers strong value, in my view.
JD Sports Fashion
The last time I covered JD Sports Fashion (LSE: JD) back in late August, the shares were trading above 500p, after surging more than 30% in the space of three months. At the time, I said that the shares didn’t offer as much value as they had in the past as they were trading on a forward P/E of 19, and that I rated the stock as a’hold’.
However, since then the stock has fallen significantly and the shares can now be picked up for around 430p, which equates to a forward P/E of a more reasonable 15.7. I think that’s good value.
Share price fall
There are a number of reasons the shares have fallen recently. First, investors were unimpressed with half-year results released in mid-September, even though revenue surged 35% (like-for-like revenue growth was 3%) and basic earnings per share rose 24%.
Second, in mid-October, Morgan Stanley commenced coverage of the stock with an ‘underperform’ rating (and a price target of 355p) and said it was concerned about the group’s recent acquisition of US group Finish Line and its reliance on brands Nike and Adidas which are growing their own ‘direct to consumer’ ops.
Third, CFO Brian Small, who has been with the firm for 15 years, stepped down, which won’t have helped sentiment. Lastly, the recent market weakness has dragged most stocks down.
The growth story is intact
However, I’m not too concerned about these issues. I still see the group as a play on the powerful sporting brands Nike and Adidas, as well as a play on the millennial generation, who have a love for athleisure shoes and clothing, and I believe there could be plenty more growth to come from JD.
Whereas many other retailers on the UK high street are struggling at the moment, JD is performing admirably due to its dynamic multi-channel business model which combines physical stores with digital online stores. As my colleague Kevin Godbold recently said, there’s a clear difference in the way JD Sports Fashion approaches its business compared to department store-type retailers, and this is reflected in the group’s recent financial performance.
And with its international expansion gathering momentum and a significant number of stores being opened across Europe (18 new stores in H1) and Asia (21 in H1), I think the company is poised to continue generating growth in the years ahead. I believe the current share price offers an excellent buying opportunity.
