The JD Sports share price has collapsed. I am buying for recovery

Smiling Caucasian woman holding iPhone with Airpods in ear

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Last year shares in JD sports fashion (LSE:JD) have lost almost half of their value. JD Sports’ 48% drop in stock hurts me as a shareholder of the retailer.

But as yesterday’s interim results showed, the business seems to be in good health. Revenue for the first half rose 14% compared to the same period last year. Although operating income declined for the six months, the company still expects total 2022 income before taxes and exceptional items to be around the prior-year level. I think that’s good because last year was the strongest performance in JD’s history.

So is this an opportunity for me to add more stocks to my portfolio in hopes of recovery?

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JD’s challenges

First, I think it’s worth considering why JD Sports’ stock price has fallen so much.

I see a couple of reasons. An important point are changes in the management level. The group’s longtime managing director was replaced this year. After his outstanding track record of building the company, investors are nervous about what’s next. There is a risk that revenue growth will slow. However, the new management is experienced and seems capable. At least for now, I don’t see any concrete reason to believe that they can’t continue to lead JD down a successful path.

Another concern is that the deteriorating economic environment will affect buyers’ willingness to grab the latest pair of Flash sneakers. That’s a risk, and indeed the company nodded to “widespread macroeconomic uncertainty‘ in his results. But it also struck an optimistic note, for example with a “encouraging return to positive trading‘ in the US market.

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chances ahead

These challenges are real – but do they justify JD Sports’ stock price nearly halving?

In my view, the company’s market should continue to be in high demand. Even if a recession reduces some consumer discretionary spending, I think JD’s core audience will likely still want to keep up with the latest fashions. It has a strong brand and an established customer base. The company’s outstanding growth rate over the past decade demonstrates that it understands how to source effectively, engage buyers and make a profit.

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If demand slacks, it could hurt sales — though first-half results show little sign of that so far. Other risks, including supply chain inflation, could also weigh on profits. But I think this is a quality company with an appealing customer proposition and proven operational skills.

Why I like the JD Sports stock price

Given all of this, the stock looks like a steal for my portfolio. Using last year’s earnings, the company trades at a price-to-earnings ratio of around 13. It has a strong brand and is a leading player in a market that I expect to continue growing.

I bought JD Sports stock for my portfolio this year in anticipation of recovery and long-term growth. I intend to continue doing so.

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