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It has been a record-breaking week for the flagship FTSE 100 index of main blue-chip shares. The index hit a brand new all-time excessive.
Over the previous 5 years, the FTSE 100 has moved up by 43%. That type of efficiency is spectacular in my opinion, given the mature nature of the businesses that usually make up the index. It clearly beats the five-year efficiency of the FTSE 250, a 25% acquire.
So, may the index now be too costly to supply the potential for long-term reward if an investor was to place cash into it as we speak?
Nonetheless competitively priced
I don’t see the FTSE 100 as clearly overpriced.
In reality, on many valuation metrics, it stays markedly cheaper than the equal US index, the S&P 500.
Stepping again from the index itself also can assist supply some perspective. Sure, it’s potential to “purchase the index” for instance by investing in an index tracker fund. However an alternate is looking round among the many 100 member firms that make up the index and seeing whether or not any of them individually seem to supply higher potential worth.
Rising enterprise promoting for pennies
For example, one share I believe traders ought to think about is retailer JD Sports activities (LSE: JD).
Whereas the FTSE 100 has gone up 43% throughout the previous 5 years, it might have achieved even higher had not JD Sports activities achieved so poorly in that interval. The JD Sports activities share worth has fallen 35% over that timeframe. The share now sells for pennies.
So, what’s incorrect right here that may assist clarify that decline?
One problem has been weak demand for merchandise produced by Nike, a key provider. A collection of revenue warnings for the sports activities retailer has not helped increase Metropolis confidence.
In the meantime there’s a danger that weakening client demand may see revenues and income fall. JD Sports activities has described the market as “risky” and its like-for-like gross sales fell 2% within the first quarter in comparison with the prior yr interval.
Nonetheless, it nonetheless expects total income progress for the yr due to current acquisitions and store openings.
With huge new retailers opening, comparable to its largest ever retailer at Manchester’s Trafford Centre, this seems to be to me like an organization that, removed from being on the ropes, stays firmly in progress mode.
Valuation seems to be low-cost
Excluding lease liabilities, the corporate is debt free. Final yr’s revenue earlier than tax and adjusting objects was £923m.
But the present market capitalisation of the FTSE 100 multinational is £4.3bn. On a price-to-earnings ratio foundation, that appears very low-cost to me.
That doesn’t imply that the share worth will essentially bounce again any time quickly. The dangers it faces stays substantial. It has typically seemed low-cost to me over the previous couple of years, however has not but staged a giant restoration.
I take the long-term strategy to investing, although. On that foundation, I proceed to assume there’s potential worth in JD Sports activities and another particular person FTSE 100 shares too.
