Down 50% with a P/E of just 6.6! Should I buy even more of this stupidly cheap value stock?

For me, one FTSE 100 value stock stands out above all the rest. Its name? JD Sports Fashion (LSE: JD). The self-styled ‘King of Trainers’ has one of the lowest price-to-earnings ratios on the entire blue-chip index at just 6.6. That’s astonishingly low for a business forecast to deliver £849m of profit this year. So am I missing something?

JD should be storming it. The group sells hugely popular trainers and sportswear brands in around 4,850 stores in 49 countries, and continues to open hundreds more each year. The £1.1bn acquisition of US chain Hibbett in 2024 gave it a huge opportunity, with North America now generating roughly 40% of group sales.

Boasting a high-profile partnership with Nike, it once looked unstoppable. Not now. The JD Sports share price has plunged 50% over five years. I began buying a couple of years ago, hoping to capitalise on what looked like a temporary setback and that ultra-low P/E. So far, it hasn’t paid off. I’m still more than 20% underwater. At least the pace of descent has slowed, with the shares roughly where they were a year ago.

JD Sports is off track

The latest update, published on 21 January, confirmed another underwhelming Christmas. Like-for-like sales fell 1.8% in the nine weeks to 3 January, slightly worse than the previous quarter’s 1.7% decline. North America managed 1.5% growth, but the UK dropped 5.3% and Europe slipped 3.4%.

While management maintained profit guidance at £849m, that’s down from £923m the year before. Making money isn’t enough, it’s the direction of travel that matters. Right now, JD is still pointing the wrong way. Gross margins are also narrowing, with a drop of 50 basis points expected as it cuts prices.

The wider outlook seems patchy with customers under the cosh financially, especially younger people. In another drag, JD’s major brand partners such as Nike are only at the early stages of new product cycles.

I’m taking take some comfort from the improvement in North America and plans to step up its marketing efforts there. Rising youth unemployment is my biggest worry, especially if artificial intelligence destroys entry-level jobs as some fear. If jobs are scarce, discretionary spending on trainers may suffer.

Reasons for caution

JD Sports has its critics. Deutsche Bank recently cut its price target, warning the company may be out of step with shifting fashion tastes. Female shoppers may be rotating away from certain sportswear categories, and some loyal male customers may be doing likewise.

I’ve averaged down on JD Sports four times with little to show for it so far. I’ve made my play, and now I feel it’s time to sit tight and see if it works. Buying value stocks demands patience, companies don’t turn themselves around overnight. The market is wary of JD Sports, even Monday’s (23 February) announcement of a £200m share buyback didn’t lift spirits for long.

I suspect the worst of the slump is over, but JD Sports is likely to bump along for a year or two, before the fightback begins in earnest. I think it’s still worth considering for far-sighted investors prepared to tolerate short-term volatility. Just remember that when shares are cheap, there’s usually a reason.