JD Sports Share Price Up 4% This Week – Time to Buy JD Sports Stock?

Despite some controversy about executive compensation in the past few days, the price of JD Sports (LON: JD) stock has risen 4% so far this week with the share price displaying gains in the past four trading sessions while encountering some resistance at the stock’s short-term moving averages this morning.

However, the stock has just posted a concerning lower high following the release of JD’s annual report back in mid-April, possibly as sales came in below analysts’ estimates for the year.

Nonetheless, the stock is still up 6.3% so far this year while it managed to end last year with a 2.7% advance despite the pandemic headwind.

Could this be an opportunity to buy JD Sports at a still relatively decent valuation before the stock moves higher once economies fully reopen? The following article takes a closer look at the stock’s current technical setup while providing more details about the business fundamentals to see if this could be an opportunity to enter a long or short position depending on the findings.

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JD Sports Share Price – fundamental analysis

JD Sports shows a remarkable track record of revenue growth, with top-line results moving from £$1.06 billion back in 2012 to £6.2 billion last year for a compounded annual growth rate of 21.7%.

Meanwhile, growth in the four years that preceded the pandemic was actually stronger, with the company managing to push its revenues 29.5% higher by the end of its 2020 fiscal year compared to the year before.

That said, the health emergency clearly impacted JD’s ability to maintain this uptrend since sales advanced only 1% last year amid the crisis.

However, although this number might seem disappointing when compared to the company’s impressive track record, it is important to note that most of JD’s 2,636 stores remained either fully or partially closed during the year, which emphasizes how effective the firm was in pushing its online revenue to a point that it partially offset the decline seen in physical store sales.

On the profitability front, JD managed to maintain its gross margin at 48% – near the historical average – while both the firm’s EBITDA and net profit margins declined to 7.9% and 3.6% respectively, down from their 8.6% and 4% readings from the previous year.

On the other hand, by the end of last year, JD’s net debt landed at around £700 million for a net debt/EBITDA ratio of 0.9 alongside an LT-debt-to-assets ratio of 32.7%. Moreover, the firm ended the year with £964 million in cash.

With a market capitalization of £8.36 billion excluding cash, the company is being valued at 1.11 times its forecasted 2022 sales based on data compiled by Seeking Alpha and 25 times its 2022 estimated earnings per share of 36p according to data from Koyfin.

It is important to note that such a forecast seems a bit optimistic as it would result in a 57% jump in the firm’s bottom-line profitability even though JD’s net profits have been on a downtrend since 2019, moving from 27p in 2019 to 23p last year.

However, according to the company’s annual report, the management expects to see the firm’s profit before taxes landing between £475 and £500 million, which results in a 46% advance compared to last year. Upon deducting a tax rate of 30%, that results in an EPS forecast of 36 per share – in line with analysts’ forecasts.

Based on the firm’s valuation multiples, JD Sports stock seems fairly valued since even though the P/S ratio is fairly low the company has not been able to translate revenue growth into improvements in its bottom-line profitability, at least for now.

JD Sports Shares – technical analysis

The chart above shows the extent of the uptrend that JD Sports stock has been seeing since the pandemic crash as the company’s robust financials and solid past revenue growth helped the share price in bouncing back.

However, the price action has encountered resistance around the 950p level right after the annual report came out.

Based on the company’s robust fundamentals, if the price makes a higher high in the following weeks, chances are that the stock could either resume or accelerate its uptrend as a result of the reopening tailwind.

That said, momentum oscillators remain on a downtrend even though the stock has been advancing. This bearish divergence points to an upcoming pullback in JD Sports stock that could offer a much more appealing entry price for those seeking to take a long position in the company.

If such a downturn takes place, the stock’s long-dated lower trend line remains the key support to watch.

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