What on earth is going on with the stock market? A lot of people have been wondering that over the past few months, as we have seen some wild swings on both sides of the pond. Quite a few FTSE 100 shares have crashed, only to get back to where they were in short order. Look, for example, at the massive “V” near the right-hand axis of the share price chart for M&G.
Not all have bounced back, and I reckon there are some potential bargains in the market right now.
That could present a rare opportunity for investors to build wealth, as they can buy quality companies for less than before.
To illustrate this point, I will use one FTSE 100 share that has already recovered a lot of ground – but still looks seriously undervalued to me.
Up 37% — but down 27%!
The share in question is sportswear retailer JD Sports (LSE: JD).
The JD Sports share price has leapt 37% over the past few weeks. But that still leaves it 27% below where it was a year ago. In fact, it is 46% below where it stood as recently as September.
Has much changed since September? Yes, it has, and I think that explains part of the fall. JD Sports issued multiple profit warnings last year. Tariffs have loomed larger as a risk for the company, which has large operations in the US and UK but imports a lot of its stock.
A less ambitious store opening programme announced this year could reduce the long-term growth prospects for the company. It expects a slight fall this year in like-for-like sales.
I reckon this is a bargain
Still, as the company’s shop opening programme continues for now, it – along with acquisitions – means that JD Sports expects strong overall (not like-for-like) growth in revenues this year due to a larger shop estate.
Cutting back on opening new shops has the benefit of reducing capital expenditure, potentially boosting profits.
An economic downturn could hurt demand for pricy trainers, but the company’s market is large and it has a well-proven business model that is working well internationally. It benefits from a strong brand, deep customer understanding, and economies of scale.
At its current price, the FTSE footwear king has a market capitalization of £4.5bn. That is barely five times the company’s expected profit before tax and adjusting items for the year, of £915m-£935m.
On that basis, JD Sports shares look badly undervalued to me even now. I see it as a potential bargain for long-term investors to consider.
JD Sports is not the only FTSE 100 share that I reckon is currently trading for notably less than it should be, when considering its long-term commercial prospects.
By building up a portfolio of brilliant shares at such attractive prices, and holding for the long term, I think investors have an excellent opportunity to try and build wealth.
