Positive Sentiment Still Eludes JD Sports Fashion Plc (LON:JD.) Following 29% Share Price Slump

Unfortunately for some shareholders, the JD Sports Fashion Plc (LON:JD.) share price has dived 29% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 35% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about JD Sports Fashion's P/E ratio of 14.5x, since the median price-to-earnings (or "P/E") ratio in the United Kingdom is also close to 16x. 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for JD Sports Fashion

If you'd like to see what analysts are forecasting going forward, you should check out our free report on JD Sports Fashion.

Is There Some Growth For JD Sports Fashion?

There's an inherent assumption that a company should be matching the market for P/E ratios like JD Sports Fashion's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 48%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 20% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 42% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 14% per annum, which is noticeably less attractive.

With this information, we find it interesting that JD Sports Fashion is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On JD Sports Fashion's P/E

With its share price falling into a hole, the P/E for JD Sports Fashion looks quite average now. 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.

Our examination of JD Sports Fashion's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for JD Sports Fashion that we have uncovered.

If you're unsure about the strength of JD Sports Fashion's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.