Here’s why we think JD Sports Fashion (LON:JD.) is worth watching
For starters, it might seem like a good idea (and an exciting prospect) to buy a company that tells investors a good story, even if it completely lacks a track record of revenue and earnings. But as Warren Buffett said, “If you’ve been playing poker for half an hour and you still don’t know who the sucker is, you’re the sucker.” When buying such stocks, investors are too often suckers.
In the era of blue-sky tech-stock investments, my choice may seem old-fashioned; I always prefer profitable companies like JD Sports Fashion (LON: JD.). Even if stocks are fully valued today, most capitalists would recognize its earnings as a demonstration of consistent value generation. While a well-funded business may suffer losses for years, unless its owners have an endless appetite to subsidize the customer, it will eventually have to turn a profit, or else breathe its last breath.
See our latest review for JD Sports Fashion
JD Sports Fashion’s earnings per share increase.
The market is a short-term voting machine, but a long-term weighing machine, so stock price eventually follows earnings per share (EPS). So it’s no surprise that I like investing in EPS growth companies. JD Sports Fashion succeeded in increasing EPS by 16% per year, over three years. That’s a good growth rate, if it can be sustained.
One way to check a company’s growth is to look at the evolution of its revenues and its earnings before interest and taxes (EBIT) margins. The good news is that JD Sports Fashion is increasing revenue and EBIT margins have improved by 4.5 percentage points to 12% compared to last year. Checking those two boxes is a good sign of growth, in my book.
The graph below shows how the company’s bottom line and top results have grown over time. To see the actual numbers, click on the chart.
Of course, the trick is to find stocks that have their best days in the future, not in the past. You can of course base your opinion on past performance, but you can also check out this interactive professional analyst EPS forecast chart for JD Sports Fashion.
Are JD Sports Fashion insiders aligned with all shareholders?
Like kids on the street standing up for what they believe in, insider stock buying gives me reason to believe in a better future. Because often buying stocks is a sign that the buyer considers them undervalued. However, insiders are sometimes wrong and we don’t know the exact logic behind their acquisitions.
First of all; I didn’t see any insiders selling shares of JD Sports Fashion last year. But the really good news is that executive chairman Peter Cowgill spent £431,000 to buy the shares, at an average price of around £1.72. To me, that means at least one insider thinks the company is doing well — and they’re backing that view with money.
Along with insider buying, another encouraging sign for JD Sports Fashion is that insiders, as a group, hold a significant stake. To be precise, they have shares worth £15m. That’s a lot of money, and no small incentive to work hard. Even though that’s only about 0.2% of the company, it’s enough money to indicate alignment between company executives and common stockholders.
Is JD Sports fashion worth watching?
A positive for JD Sports Fashion is that it increases the EPS. It’s nice to see. On top of that, we’ve seen insiders buy stocks even if they already have a lot. To me, all of this is well worth a place on your watch list, as well as further research. Still, the ubiquitous specter of investment risk must be taken into account. We have identified 1 warning sign with JD Sports Fashion, and understanding it should be part of your investment process.
As a growth investor, I like to see insider buying. But JD Sports Fashion is not alone. You can see a free list of them here.
Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.