Investing in FTSE 100 stocks is not without its challenges. When I look to buy cheap stocks, I find that many of them are cheap because they have unclear prospects. Or they might not have given solid capital gains to investors for years, which is why they are still cheap. Occasionally though, I might get an opportunity to buy a really fast growing stock at a really low price.
The example I have in mind is athleisure retailer JD Sports Fashion (LSE: JD). The stock has seen stellar growth over the past few years. If I had bought the stock five years ago, I would be sitting pretty on a capital gain of 250%! This roughly translates to a 50% increase every single year. That is saying a lot, especially considering that in the interim there was the big coronavirus interruption.
JD Sports Fashion looks cheap after a stock split
So how is the stock still cheap? The company recently did a stock split. Each share was divided into five shares, which has naturally led to a drastic drop in the per share price. As I write, the share price is just 220p. I reckon that if the stock markets were to crash, it might even become available as a penny stock. After all, it did lose more than half its value within a few days as coronavirus fears grew in March last year. If an event like that were to happen again, I would load up on the stock a bit more.
Share price expected to rise for the FTSE 100 stock
I also feel confident about JD Fashion’s prospects. It has been a high performer for years now, and has even stayed profitable despite the pandemic. It also sounded confident of its future in its latest results, released a few months ago. Moreover all analysts believe that its share price will rise in the next 12 months. As per data compiled by the Financial Times, even the most pessimistic analysts expect that its share price will rise 2% in the next year. On average, they expect it to rise by 11% and the most optimistic ones actually believe that a 36% increase is in store for the stock.
What could go wrong
While all forecasts are subject to changes, depending on incoming developments, they do give me a good indication of how things look for the FTSE 100 stock based on the information available so far. At the same time, I am keeping a close watch on the pace of the recovery. The UK economy’s progress has been muted in recent months. And the latest growth data, released earlier today, is no different. With the Omicron variant still a potential health threat and increased coronavirus restrictions, the recovery could remain challenged. While the UK is not the only big market for JD Sports Fashion, it is one of the big ones. And what happens here could impact its fortunes.
Given its ability to bounce back as well as the growing trend towards online shopping, though, I am still quite positive on the FTSE 100 stock. In fact, I loaded up on it soon after the stock split happened!
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Manika Premsingh owns JD Sports Fashion. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.