Image source: Getty Images
The retail sector can be a minefield for investors, where the likes of fashion e-commerce rise and fall in the blink of an eye. Many will miss the price hike ASOS share price in 2021 as e-commerce grows. But it's been smooth sailing ever since. Amid the noise and volatility, I suspect there is one retail giant that may be on a sustainable path to reliable, long-term profitability: JD Sports Fashion (LSE: JD.).
Long term plan
While ASOS's price tag may have caught the market's attention in recent years, I think a closer look at JD Sports suggests that this retail titan could be a very attractive proposition. With an impressive track record, strong financials, and strategic vision, the company seems poised for continued growth as others in the industry struggle.
Founded in 1981, the company has weathered countless storms. Unlike many of its peers, this company has been able to steadily increase market share, delivering an impressive 188% increase in revenue in the past year alone.
Numbers
For me, one of the most compelling aspects here is the balance. Shares currently trade at a healthy 44% discount to the discounted cash flow (DCF) ratio of fair value. Of course, there's a reason the market isn't paying this close to fair value, with a lot of competition and uncertainty in the sector, but I think there's potential here.
But the real kicker? The company's annual revenue is predicted to grow by 12% over the next five years. That kind of consistent growth is what can charge a portfolio for years to come. And with a diverse business model that includes sports fashion, outdoor wear, and more, there's a strong foundation for that growth to continue.
When it comes to financial strength, this company leaves many of its competitors in the dust. The company's balance sheet is strong, with a modest 4.5% debt-to-equity ratio. This provides a large amount of flexibility to take risks, make gains, and generally focus on the future.
It's a dangerous industry
Business is obviously not immune to the challenges that may arise, such as sharp changes in consumer preferences, supply chain disruptions, and intense competition. In terms of reported website traffic, the company seems to be on a bad slide, down about 10% last year. Many consumers now shop almost exclusively through social media, which could spell the end of many brick-and-mortar stores if management can't adapt.
I feel like there is also a lack of excitement for shareholders here. With a dividend yield of just 0.73%, and a sector that isn't exactly glowing, many may look elsewhere for a new long-term investment.
Lots of energy
However in a world where retail giants can rise and fall at an alarming rate, I feel that JD Sports can stand tall as a beacon of consistency and strength, especially when compared to others in the sector.
With a strong history, strategic vision, and attractive valuation, I think the business offers a compelling opportunity for those willing to stick around for the long term. I will be adding it to my watch list.
Source link
