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On the surface, a FTSE 100 stock down 65%, trading for pennies a share and sporting a price-to-earnings (P/E) ratio of below 10, has all the ingredients for a possible bargain.
JD Sports (LSE: JD) currently ticks all those boxes. The sports/fashion retailer’s 82p share price (as of 2 September) looks positively bargain-basement compared to a former high of 233p back in 2021. Simply returning to that high watermark would be enough to turn £10,000 into £28,415. And despite all that, I plan to avoid this stock like the plague. Here’s why.
Problems
The problem with JD Sports shares, as I see it, is similar to those of sports giants Nike (down 79% since 2021) and Adidas (down 49%). Those two giants make up around half of all JD Sports revenue. And all three companies have been stuttering since the athleisure trend took hold during the pandemic.
The numbers tell the story. JD Sports has issued three profit warnings since 2024. The firm has had to enact near-constant discounting to shift stock, and margins have been squeezed as a result. The forecast for future earnings look grim too.
What’s the reason behind all this? These brands are struggling to maintain ‘cool’ status. That’s one worry, at least. Shoppers are opting for cheaper, or simply different names on their clothes/trainers. And once a brand loses its lustre, then it’s not an easy thing to turn around. See the decline and fall of Superdry shares for proof enough of that.
While I concede that the cheap valuation does offer turnaround potential for JD Sports, I think there are similar FTSE 100 stocks that look much more attractive at the moment.
Trading for pennies
Another retail stock that traded for pennies was Marks and Spencer (LSE: MKS). Someone spotting the opportunity in the fashion-to-food firm’s 93p share price back in 2022 would be quids-in today – the shares now change hands for 389p!
Unlike totally-trend-focused brands, M&S offers trends but also classics and essentials. This something-for-everyone approach can lead to more reliable cash flows over the long term. Paired with a food division that’s popular with more affluent consumers and this could be a great all-round stock worth considering. That food is around 65% of sales and clothing 35% is one explanation for the booming share price.
As for risks, the joint venture with Ocado has been stuttering along. The home delivery partnership has not been meeting targets. This could be a growing concern as it shoudl be firsing on all cylinders with consumers increasingly going online to buy their groceries.
Overall, there are many FTSE 100 stocks worth a look these days, and I’d put Marks and Spencer in the category long before JD Sports.
Should you invest £5,000 in JD Sports Fashion right now?
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John Fieldsend owns shares in Ocado.
This story originally appeared on Motley Fool
