Finding the top investments in the FTSE 100 often requires a combination of good value and stellar growth. In my opinion, JD Sports Fashion (LSE:JD) offers both of these elements in abundance. Here’s why I think it could deliver stellar returns in 2025. But will I buy?
Bargain prices for exceptional growth
I almost bought the shares in early September when it was 15.5% cheaper than it is today. At the time, I noticed that the market had significantly undervalued the company. I thought it could deliver a 35% growth in its market cap in 18 months.
While there’s slightly less of a value opportunity right now than at the beginning of the month, the investment is still well-positioned for top long-term returns, I feel. It still has a bargain price-to-earnings (P/E) ratio of just 14.5. This is way lower than its 10-year median of 23.
However, growth is slowing for the company. This is a big reason why the market has valued it more cheaply right now.
While I can expect good growth moving forward due to its robust international expansion strategy (especially in North America), I can’t expect the same stellar 744% price growth the shares have delivered over the past 10 years for the next decade.
Analysts are bullish
I’m more bullish than analysts on this one, but 14 analysts have an average 12-month price target of 10.3% growth.
In my opinion, the investment could deliver higher returns than this because it’s potentially undervalued. If its P/E ratio expands by 5% over the next 12 months and it hits the consensus earnings per share estimate of £0.14 for January 2026, the shares could be worth £2.14 in late 2025. That’s if the market prices in the future earnings into the company’s valuation early.
But I’m not the most optimistic person out there. The highest 12-month price target for JD Sports shares of the 14 bankers I studied is currently £2.50.
Focusing on the long term
While a 40% return from the present price of £1.52 sounds appealing, it’s not enough for the business to earn a place in my portfolio. Instead, I need to know that this company has a high likelihood of continuing to grow over the long term.
Analysts are expecting three-year average annual earnings per share growth rate of 16%. Management has managed to attract these estimates through a lean operational strategy in which it’s sold non-core businesses to focus on its best-performing assets.
However, as the company is so heavily invested in Western markets, it’s very vulnerable to a potential recession in this region, which I believe could occur soon. With high inflation and huge Federal debt piling up in the US, I’m making sure I don’t own too many Western-focused companies right now.
Worth a small allocation?
So will I buy JD Sports? Getting great portfolio returns is all about diversifying well. I only need to own stakes in 10 or so stellar companies. However, it’s vital to make sure these vary across global regions and industries. That helps to protect me from the unique risks in different markets.
I’m still thinking about buying these shares but haven’t made my decision yet. I don’t want to make the mistake of waiting too long though — the undervaluation is unlikely to last much longer!
