I’ve been keen to buy JD Sports (LSE: JD) shares for years, but always thought I’d missed my moment. Every time I checked it out, I seemed to have just missed yet another mighty growth spurt.
I was planning to buy the stock at the start of December, but was short of cash so didn’t. On 28 December, I wrote on Fool.co.uk that I was all set to buy it in January. One thing worried me though.
I wrote: “Growth stocks scare me, especially when they’re flying. I find it so hard to judge whether they can maintain their momentum. With so much of tomorrow’s value built into today’s valuation, a minor earnings disappointment can inflict major damage.”
I got lucky with this one
I was right to be scared. On Thursday (4 January), the self-styled ‘King of trainers’ posted a shock profit warning and its shares crashed more than 20%. If I’d bought the shares a month ago, as originally planned, I’d be at the sharp end of a 28.28% loss. No FTSE 100 stock has done worse in that time.
If I’d invested £5,000, my money would be worth just £3,586 today and I’d be down £1,414 on the deal. Over the last 12 months, the stock has fallen 13.85%. Long-term investors are still nicely up though, as it has grown 71.96% over five years.
A younger version of myself would have snapped up JD Sports shares the moment they crashed, taking advantage of this huge discount. Yet time has taught me to be cautious, as one profit warning can often follow another. Investors can be unforgiving. The share price recovery can take much longer than expected. If it ever arrives.
Mild autumn weather hit winter season sales while consumer caution forced the group to discount heavily over the peak Christmas shopping season. At the half-year mark, it predicted pre-tax profit of £1.04bn for the 12 months to 3 February. Now it anticipates between £915m and £935m.
I’ve been given my chance
Some of the profit drop was due to technical details. The group earned £8m less interest income due to last year’s acquisition of Iberian Sports Retail Group, and faces “very tough comparisons” with the previous year.
Personally, I think the market has been tough on its former favourite. JD Sports is now valued at a mere 8.94 times earnings. Do investors really think people will suddenly stop buying sports gear? This looks like a long-term buy-and-hold opportunity to me.
I accept that economic conditions are tough right now. The key US market could even fall into a recession, as could the UK and Europe. Inflation is falling but Red Sea unrest could drive it back up and make consumers feel poorer again.
JD Sports’ profit warning may be the tip of a deeper iceberg. Yet having hankered after the stock for ages, I’ve just been served it up on a plate. I’ve got lucky once, by failing to buy it at a higher price. Now I think I should take my chance and see if I can get lucky a second time, by buying it at the right time.
