Shares of FTSE 100 retailer JD Sports activities (LSE:JD) definitely look good worth. Down 20% because the begin of the 12 months, the inventory trades at a price-to-earnings (P/E) ratio of round 12.

That places it 62% beneath the highest analyst estimate for the inventory. And whereas that may be optimistic, traders may moderately take a better have a look at the inventory from a worth perspective.

Why the inventory’s been falling (1)

There are – for my part – two most important explanation why the inventory‘s been falling. The primary is that gross sales progress has been weak. 

In its January replace, the agency introduced gross sales progress of three.4% for final 12 months. That’s barely above inflation and the more serious information is that this was fully the results of opening new shops.

Like-for-like (LFL) gross sales have been really down 1.5% in 2024. That’s a pattern we’ve seen elsewhere (Greggs, Related British Meals, and B&M European Worth Retail), however it’s additionally an issue.

The corporate gained’t be capable to preserve opening new shops to offset this indefinitely, so LFL progress‘s necessary. And the steering for this 12 months is for LFL gross sales to be flat, not up. 

Why the inventory’s been falling (2)

The most recent cause the inventory’s been falling has to do with Nike. The corporate might need one of the crucial recognisable manufacturers anyplace, however it’s been struggling. A sequence of errors have precipitated gross sales to fall. And the newest information from the US agency is that revenues are down 9% in the latest quarter. And the outlook for the following one’s additionally weak.

That’s an issue for JD Sports activities as a result of – to place it merely – if Nike can’t promote its trainers, it’s arduous to see how the FTSE 100 firm will. And that’s one other dangerous signal for gross sales.

It’s arduous to evaluate the extent of the problem (JD Sports activities doesn’t disclose details about Nike gross sales as a result of it’s one other public firm). Nevertheless it’s clearly not an excellent factor. 

Is the inventory really low-cost?

The funding financial institution with the 200p JD price goal is Peel Hunt. The estimate is from January, so it doesn’t account for the newest information from Nike. 

In line with the dealer, JD Sports activities is in an excellent place. It’s arduous to see a direct improve in income, however it’s anticipated to do effectively over the long run.

Particularly, the report highlighted the actual fact the FTSE 100 retailer hasn’t been reducing costs to spice up gross sales. As an alternative, it’s targeted on margins – and it’s finished effectively on this entrance. 

I think extra short-term points (this time coming from Nike) are unlikely to matter a lot to a dealer targeted on the long run. So ought to I purchase the inventory whereas it’s down 20% this 12 months?

Retail investing

I agree that JD Sports activities has been going through issues that aren’t of its personal making. However that makes me really feel worse concerning the inventory, not higher. 

Typically, I favor firms which can be ready to regulate their very own future. The extra a enterprise can do to extend its profitability, the higher I prefer it. 

There are a couple of (crucial) exceptions however this isn’t normally the case with retailers. And I don’t see that it’s true of JD Sports activities, which is why I’m going to look elsewhere for shares to purchase.