I’ve gone big on a struggling UK growth stock, but so far it’s been one of my worst calls. Are my fortunes about to change?
My rogue portfolio holding is JD Sports Fashion (LSE: JD). The FTSE 100-listed sportswear and athleisure retailer calls itself the King of Trainers, but performance has been anything but regal lately.
I kept close tabs on the stock during its glory growth years, when it benefited from securing early and exclusive access to high-demand products from Nike and adidas. It won over trend-conscious young consumers with slick stores, smart social media marketing and a successful blend of high street and online sales.
JD expanded rapidly across Europe, Asia Pacific and North America, boosted by acquisitions including Finish Line, Shoe Palace, DTLR and the $1.1bn purchase of Hibbett in the US.
Why was JD Sports such a winner?
Then it lost its way. Younger shoppers were hit hardest by the cost of living crisis, with weaker wage growth and fewer job opportunities leaving less money for trainers and sportswear. JD also relied heavily on Nike, which accounts for almost half of sales, and suffered when the sportswear giant stumbled and demand for trainers cooled.
The slowdown forced JD into heavy discounting, squeezing margins. Revenue has continued to rise, but that’s largely thanks to acquisitions:
- 2026 – £12.7bn
- 2025 – £11.5bn
- 2024 – £10.5bn
- 2023 – £10.2bn
- 2022 – £8.6bn
By contrast, like-for-like sales slowed and pre-tax profits have been volatile.
- 2026 – £629m
- 2025 – £715m
- 2024 – £811m
- 2023 – £487m
- 2022 – £655m
Higher material costs, discounting and investment all took their toll. The business also generates around a third of its profits in the UK, and these were squeezed by employer’s National Insurance and minimum wage hikes. North America delivers almost 45% of profits, but younger consumers there are under pressure too.
The JD share price has plunged by 50% over five years. Sensing a buying opportunity, I’ve bought JD four times in the last 18 months, attracted by a rock-bottom price-to-earnings ratio that fell as low as six, one of the lowest on the FTSE 100. Still the shares fell. Until now.
Can the recovery continue?
The shares are up 36% in the last three months and, while I’m still nursing a paper loss, I’m edging closer to breaking even.
The recovery gathered pace after full-year results on 7 May showed revenue rising 11.7% to £12.7bn, free cash flow jumping 36% to £462m and the full-year dividend increasing 20% to 1.20p. That followed a £200m share buyback announced in February.
Profits still fell due to weaker footwear demand and restructuring costs from integrating recent acquisitions. This time, though, investors chose to focus on the positives.
The shares still look reasonably priced, with the P/E ratio climbing to 9.9. It’s always been a growth story rather than an income stock, but the trailing dividend yield has edged up to 1.35%.
Whether JD can really take off depends on forces beyond its control, primarily the global economy, wages and consumer confidence. If inflation flares up again due to the Iran war, its recovery could reverse. The shares are worth considering for patient investors, but they’ve got a way to go before they recapture their glory days.
Should you invest £5,000 in JD Sports Fashion right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if JD Sports Fashion made the list?
Harvey Jones owns shares in JD Sports.
This story originally appeared on Motley Fool
