JD Sports shares plunge but analyst points to strong growth potential

Fallen star JD sports saw as much as £1.8 billion being wiped off its market value this week as shareholders rushed to sell their shares on the back of the company’s profit warning.

At one point on Thursday, the shares that are traded on the London Stock Exchange were down almost 24% although they ended down ‘only’ a little over 16% as other buyers jumped in, spotting a share price bargain for a company that has outperformed its peer group in general in recent periods.

It means the market capitalisation of the group was £6.74 billion as share trading opened on Friday.

The profit warning from the fast expanding company had come as something of a shock given a succession of stellar results that it had released and also given that UK retailer Next on the same day upgraded its profit expectation as it said sales over the Christmas period were higher than it had expected.

And while shares of Next rose almost 6% on the day, retail investors chose to look on the bleak side and also punished the shares of other British stores such as N Brown and M&S.

But we have to be realistic and while the company may have issued a profit warning, its expected profits are still going to be higher than those of Next for the full year and still close to £1 billion so we’re not talking about a lame duck business here.

JD Sports continues to be a well run company with a large growth runway ahead of it and core operations in one of the most dynamic categories of the market. And to be honest, explanations that mild weather and cautious consumers were partly to blame for its weaker figures are perfectly understandable.

Alice Price, Apparel Analyst at GlobalData, said that various specific issues relating to the latest period, “alongside its slowdown in sales after a few tremendous years of growth, has spooked investors. It follows wider challenges within the sportswear market, with even leading brand Nike producing disappointing results.

“However, GlobalData forecasts that between 2023 and 2027, the global sportswear market will still outperform total apparel, growing at CAGRs of 6.4% and 5.2%, respectively, thanks to its comfort and versatility, as well as ongoing consumer focus on health and fitness, and JD Sports has a superior proposition that should see it regain strong demand once economic pressures subside.”