Day Trade – Shares – JD Sports

JD Sport released a trading update for the 22-week period ending December 30, 2023, which presented a mixed financial picture:

Revenue Growth: The company reported a 6% increase in revenue, which, while positive, fell slightly short of market expectations.

Gross Margin: There is an anticipation of a marginal decrease in the full year gross margins compared to the previous year.

Financial Reclassification and Interest Income: JD Sport noted a reclassification of certain capital expenditures as operating expenses and a reduction in interest income. These changes are expected to affect the financials by approximately £15 million.

Profit Forecast: Despite these issues, the company estimates its full-year pre-tax profits to be in the range of £915 million to £935 million.

Following this update, JD Sport's share price experienced a significant drop of 22%. However, based on the assumption that long-term profitability will maintain a growth rate of at least 5%, and using the lower end of the profit forecast (£915 million, or £686.25 million post-tax), an earnings per share (EPS) of 13.24p is projected. This leads to an estimated share valuation of approximately 148p. Based on this, JD Sport’s shares appear to be undervalued by around 23%.

Consequently, I placed a small 'Buy' day trade on JD Sports this morning.

Trade

Expected Length: Short Term

Entry Price: 121.08

Price Target: 126.00

Stop Loss: 117.00