JD Sports Fashion Plc's (LON:JD.) 26% Jump Shows Its Popularity With Investors

JD Sports Fashion Plc (LON:JD.) shares have continued their recent momentum with a 26% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 20% is also fairly reasonable.

In spite of the firm bounce in price, it's still not a stretch to say that JD Sports Fashion's price-to-earnings (or "P/E") ratio of 15.4x right now seems quite "middle-of-the-road" compared to the market in the United Kingdom, where the median P/E ratio is around 17x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, JD Sports Fashion has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for JD Sports Fashion

Want the full picture on analyst estimates for the company? Then our free report on JD Sports Fashion will help you uncover what's on the horizon.

Is There Some Growth For JD Sports Fashion?

In order to justify its P/E ratio, JD Sports Fashion would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 187% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 126% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 14% per year over the next three years. With the market predicted to deliver 14% growth each year, the company is positioned for a comparable earnings result.

With this information, we can see why JD Sports Fashion is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From JD Sports Fashion's P/E?

JD Sports Fashion appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of JD Sports Fashion's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for JD Sports Fashion you should be aware of.

You might be able to find a better investment than JD Sports Fashion. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.