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This FTSE 100 stock’s price has almost halved. I’d buy!

Stack of one pound coins falling over

Over the past few months I have been buying a FTSE 100 share that I think could have a bright future. The market has been suggesting otherwise though, with the price of the stock I’ve chosen falling 47% over the last 12 months. Here is why I am treating that fall as a buying opportunity for my portfolio.

Long-term growth record

The company in question is retailer JD Sports (LSE: JD). A trip to your local high street may make it seem like flogging sports kit is a simple business. But doing it well requires a range of skills. JD has proven it possesses these in abundance, such as keeping ahead of the latest trends and cutting through the digital marketing clutter to reach younger customers.

That helps explain why JD has grown so much over the years. In the past decade, for example, annual revenue grew from under £1bn to £8.6bn. Pre-tax profit went from £79m in 2011 to £655m last year. In other words, in just one decade, the business grew by a factor of eight or nine.

What comes next?

But, as any athlete knows all too well, past performance is not necessarily an indicator of what will happen further down the track. It seems unlikely to me that JD can deliver another decade of revenue growth at similar levels, as its baseline is now simply too big. Indeed, the growth helps explain why JD Sports is now a FTSE 100 member.

Growing the current revenue by a factor of eight or nine again would mean the company’s sales were larger than that of Nike, for example, which is possible but would be extremely difficult to achieve without running into regulatory concerns about market domination. That is already happening as competition concerns forced JD Sports to offload Footasylum this year for less than it paid to acquire it.

But what JD’s stellar track record does indicate in my view is that it is a retailer on top of its game. It clearly understands the nuts and bolts of not only sourcing products and merchandising them, but also managing a global logistics chain. That has helped it expand internationally and it is now a major force in US sportswear retailing.

The company published its interim results today and revenue was 14% higher than in the same period last year. The company expects to deliver headline profit before tax and exceptional items for the year in line with the previous 12 months, which was its strongest-ever performance to date.

A FTSE 100 share I’d buy today

There are risks to the company despite its proven abilities. Inflation could eat into profit margins and a tightening economy might lead to shoppers replacing their trainers and hoodies less regularly, hurting sales. On top of that, the company’s new management (a new CEO joins later this month) has not yet proven it can steer the ship as successfully as the old executive chairman did.

Despite that, the share price fall looks overdone to me. JD now has a market capitalisation of slightly under £6bn, less than 10 times last year’s pre-tax earnings. I see that as an attractive price for what I think is a quality company.

I would happily buy more JD Sports shares for my portfolio today.

The post This FTSE 100 stock’s price has almost halved. I’d buy! appeared first on The Motley Fool UK.

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C Ruane has positions in JD Sports Fashion. The Motley Fool UK has recommended Nike. 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.