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As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term JD Sports Fashion Plc (LON:JD.) shareholders, since the share price is down 41% in the last three years, falling well short of the market return of around 15%. And the ride hasn't got any smoother in recent times over the last year, with the price 32% lower in that time. On the other hand, we note it's up 9.7% in about a month.
The recent uptick of 5.2% could be a positive sign of things to come, so let's take a look at historical fundamentals.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
JD Sports Fashion saw its EPS decline at a compound rate of 7.3% per year, over the last three years. This reduction in EPS is slower than the 16% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 11.93.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on JD Sports Fashion's earnings, revenue and cash flow.
A Different Perspective
While the broader market gained around 4.9% in the last year, JD Sports Fashion shareholders lost 32% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand JD Sports Fashion better, we need to consider many other factors. For instance, we've identified 1 warning sign for JD Sports Fashion that you should be aware of.