Is Now An Opportune Moment To Examine JD Sports Fashion plc (LON:JD.)?

By
Simply Wall St
Published
December 02, 2021
LSE:JD.
Source: Shutterstock

Let's talk about the popular JD Sports Fashion plc (LON:JD.). The company's shares received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£2.34 at one point, and dropping to the lows of UK£2.01. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether JD Sports Fashion's current trading price of UK£2.15 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at JD Sports Fashion’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for JD Sports Fashion

What's the opportunity in JD Sports Fashion?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 26.72x is currently well-above the industry average of 11.39x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since JD Sports Fashion’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from JD Sports Fashion?

earnings-and-revenue-growth
LSE:JD. Earnings and Revenue Growth December 3rd 2021

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. JD Sports Fashion's earnings over the next few years are expected to increase by 33%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in JD.’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe JD. should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on JD. for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for JD., which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 1 warning sign for JD Sports Fashion you should be aware of.

If you are no longer interested in JD Sports Fashion, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.