The retail sector can be a minefield for investors, with fashion e-commerce darlings rising and falling in the blink of an eye. Many will remember the rise of ASOS share price in 2021 when e-commerce was booming. But it has been on a steady decline since then. Amid the noise and volatility, I suspect there is one retail giant that may be on a more sustainable path to reliable, long-term returns: JD Sports fashion (LSE: JD.).

A long-term plan

While ASOS’ share price may have caught the market’s attention over the past few years, I think a closer look at JD Sports suggests this retail giant could be a far more attractive proposition. With an impressive track record, rock-solid finances and strategic vision, the company seems poised to deliver sustainable growth while others in the industry struggle.

Founded in 1981, the company has weathered countless storms. Unlike many of its competitors, this company has been able to steadily increase its market share and recorded an astonishing 188% increase in profits last year alone.

The numbers

One of the most compelling aspects for me is the valuation. Shares are currently trading at a whopping 44% discount to fair value based on discounted cash flow (DCF). Of course, given the enormous competition and uncertainty in this sector, there is probably a reason why the market is not valuing closer to fair value, but I think there is potential here.

But the real kicker? The company’s annual profit is expected to grow by a steady 12% over the next five years. Such steady growth can fuel a portfolio for years to come. And with a diversified business model that includes sportswear, outdoor apparel and more, there’s a strong foundation for further growth.

In terms of financial strength, the company leaves many of its competitors far behind. The company’s balance sheet is rock solid, with a low debt ratio of 4.5%. This gives the company a tremendous amount of flexibility to take risks, make acquisitions and generally focus on the future.

A risky sector

The company is obviously not immune to potential challenges such as sharp shifts in consumer preferences, supply chain disruptions, and intense competition. In terms of reported website traffic, the company appears to be on a downward trajectory, with a decline of about 10% over the past year. Many consumers now shop almost exclusively through social media platforms, which could easily spell the end of many traditional retail stores if management cannot adapt.

I feel there is a lack of shareholder enthusiasm here too. With a dividend yield of just 0.73% and a sector that is not exactly rosy, many may simply look elsewhere for a new long-term investment.

The story continues

Lots of potential

But in a world where retail giants can rise and fall at dizzying speed, I believe JD Sports – especially when compared to others in the industry – can be seen as a beacon of consistency and potential.

Given its solid track record, strategic vision and attractive valuation, I think the company represents an attractive opportunity for those looking to stick around for the long term. I will add it to my watch list.

The post Forget ASOS share price, this retail giant looks far more attractive appeared first on The Motley Fool UK.

Further reading

Gordon Best does not own any of the stocks mentioned. The Motley Fool UK does not own any of the stocks mentioned. The views expressed in this article about the companies mentioned in this article are those of the author and as such may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2024