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Lloyds shares are on fire at the moment. Over the last year, they’ve climbed about 50%, turning a £2,000 investment into around £3,000. Looking ahead, the shares could continue to climb as the backdrop for banks looks relatively supportive.
However, right now, City analysts see more potential in another Footsie stock…
Trading well below its highs
The stock I want to highlight is JD Sports Fashion (LSE: JD.), the athletic footwear and apparel retailer that has around 5,000 stores across 50 countries.
Currently, this stock’s trading for around 88p (miles below its highs). At that share price, its market-cap sits at around $4.3bn.
Potential for a rebound
Looking at analysts’ forecasts here, the average 12-month price target is 115p. That’s about 31% above the current share price.
Going back to Lloyds, the average price target there is 90.7p. That’s only about 9% above the current share price.
So analysts see significantly more potential in JD Sports shares. It’s important to point out however, that analysts often get it wrong (so these price targets shouldn’t be relied upon).
Three reasons to be bullish
I do see a fair bit of potential in JD Sports shares though. For a start, they’re currently trading at 2018 levels. That seems crazy to me. Back in 2018, JD’s revenue and net income figures were $3.1bn and £232m respectively. Last year however, these figures were $11.6bn and £490m.
Secondly, the company’s valuation is really low at present. Analysts are forecasting earnings per share of 11.8p this financial year (ending 31 January 2026), the price-to-earnings (P/E) ratio’s only 7.5. That’s about 50% below the median FTSE 100 P/E ratio. So JD’s trading at a massive discount to the market.
Third, the company has said that it’s moving into a phase of lower capital expenditures. This should boost earnings and free up capital for dividends and buybacks (the company recently announced a £100m buyback and said that it plans to pay ‘progressive’ dividends to investors).
Worth a look?
Of course, there are plenty of risks here. The biggest for me is a slowdown in consumer spending and this could lead to lower growth for JD and hit its share price.
US tariffs are another issue to consider. These could lead to higher prices for footwear and clothing in the US (where JD now has substantial presence) and lower demand from consumers.
I think a lot of risk could be baked into the share price already however. And with the stock sitting at 2018 levels, I think it’s worth considering today.
There’s no guarantee that it will outperform Lloyds shares, but with the valuation at such a low level, I think there’s a reasonable chance it will. So I’m backing the stock with a small position in my ISA.
