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Holding JD Sports (LSE: JD) shares has been an act of faith lately. The self-styled King of Trainers has been on the back foot as sales stuttered, Christmas trading disappointed and key partners such as Nike stumbled.
Over the past year, the share price has declined by approximately 25%, and it’s down 35% over the last five years. Despite these challenges, I’ve maintained my belief in the company’s potential for recovery.
Just a few short weeks ago, I was personally down around 20% on the stock. But suddenly I’m in the black. What happened?
FTSE 100 recovery stock
Half-year results, published on 24 September, didn’t really shift the dial, despite a 20% rise in sales and a 9.5% increase in pre-tax profit. On a like-for-like basis, sales fell 2.5%, which suggested the underlying business was still limping along. Investors remain concerned over US tariffs, even though the JD board expects “limited impact” this year.
Management also announced a £100m share buyback programme, but even that didn’t fire the starting pistol on the recovery. So what did?
Nike’s ripple effect
The real spark came after Nike released first quarter results on 30 September. The US giant’s shares jumped more than 6% next day, after Nike earnings per share came in at $2.17, beating consensus of $2.10.
It wasn’t exactly a stellar set of results, with reported sales up ust 1% to $11.7bn, while gross margins plunged 320 basis points to 42.2% amid increased discounting and tariff pressures. But it was enough.
Given Nike accounts for around half of JD’s stock, the latter’s shares jumped too. The improving tone in the US economy also helped. Any sign of renewed consumer spending tends to favour discretionary retailers, particularly those with strong brands and loyal customers.
The JD Sports share price has now climbed 16% in the last week. That would have turned a £10,000 stake into roughly £11,600. That’s an impressive quickfire return, but on the Fool we only buy stocks with a long-term view. So can the fightback continue?
Good value with growth prospects
JD still looks priced to go, with the shares trading on a price-to-earnings ratio of just 8.3. That low rating partly reflects investors’ caution but also leaves room for recovery if sentiment continues to turn.
I’m not getting carried away by recent success. Consumers are still struggling. Younger people, who are the majority of its customers, are finding the jobs market tough and that squeezes their disposable incomes. The cost-of-living crisis isn’t over yet. Tariffs remain a threat.
Yet brokers remain optimistic. Consensus forecasts deliver a median 12-month target share price of 119.4p. If correct, that would suggest a potential 15% gain from today’s 104p.
Investors can’t bank on getting much income while the wait for the next leg up, with a modest trailing yield of just 1%. But I still think JD Sports has bags of comeback potential, and is well worth considering today. Investors willing to take a long-term approach might consider buying while it’s still on sale.
