If I had £1,000 to put into UK shares at the moment, I can think of quite a few options that would catch my eye. But one of the best stocks to buy now in my opinion is JD Sports (LSE: JD). As I already have some diversification from owning other shares, I’d happily invest £1,000 in the sports retailer today. Here’s why.
Growth story
The company was formed four decades ago, trading from a single shop in the northwest. Today it operates from over 3,300 shops worldwide. While its eponymous JD brand may be the one most associated with the company, in fact it operates a couple of dozen brands. These range from sports fashion brands such as Finish Line and Scotts to outdoors specialists like Millets and Tiso.
That growth is seen in the company’s financial progress too. Last year’s revenue was £6.2bn. That equated to a 10-year compound annual growth rate (CAGR) of 19.3%. Over the same period, the CAGR for pre-tax profits was 17.0%. To grow revenues and pre-tax profits at those rates for a year or two is beyond the capability of many retailers. Yet, on average, JD has maintained that level of growth every year across the past decade.
Could the growth story have run its course? That’s a risk. Maintaining that sort of business expansion gets harder as the comparative numbers grow larger. But I think the company’s proven growth ability suggests it has a successful retail formula. Rolling it out into new markets could mean that JD keeps growing, especially in markets outside the UK.
Attractive profit outlook
I also think the company’s profit outlook makes it attractive. Its first-half results this year were the most profitable ever. That doesn’t mean the full-year picture will be as strong. Indeed, the company cautioned investors that unusual trading so far this year, especially in the US, means that first-half results shouldn’t be extrapolated as a guide to likely full-year performance.
But even if that comes to pass, the company has the characteristics of a cash generation machine. The gross profit margin last year was 48%. Pre-tax profit came in at £324m. Over time, I expect JD’s total profits to keep growing. One risk of expansion into competitive markets is profit margins falling. But if revenues expand fast enough, that doesn’t necessarily mean that total profits will fall.
Why JD is among my best stocks to buy now
If I had invested £1,000 in JD Sports a year ago, my holding would now be worth £1,410, based on the share price at the time of writing this article earlier today. Now, past performance is not a guide to future returns. But one reason I’d consider putting £1,000 into JD for my portfolio at the moment is that I feel confident about its long-term prospects.
Customer demand for clothing and footwear will likely remain high for decades to come, and JD has a proven retail formula. There is substantial scope for further expansion and the company’s profit outlook is strong.
Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore 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.
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