Stock market

Is it time to consider this beaten-down stock for an ISA?

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There’s little more I love than adding undervalued, beaten-down stocks to my ISA with the potential for some incredibly attractive long-term returns.

ISAs offer investors a great way to build their wealth. With a Stocks and Shares ISA, not a penny is paid in tax on capital gains or dividends received. This means that instead of potential profits going into HMRC’s pockets, they go straight to me. Result!

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content in this article is provided for informational purposes only. It is not intended to be, nor is it intended to be, any form of tax advice. Readers are responsible for doing their own due diligence and seeking professional advice before making any investment decisions.

With that said, here’s one stock that investors have overlooked this year. I think it might be worth considering.

JD Sports

Last year was good for him. JD Sports Fashion (LSE: JD) share price and I’m sure shareholders of the high street fashion brand enjoyed seeing the stock rise 16.4%. Unfortunately, 2024 has not been so kind.

It’s safe to say the stock hasn’t participated. FTSE 100 The Year of the Rally. While the index is up 6.8%, JD is down 21.9%. Over the past 12 months, it’s down a slightly better 16.9%.

It has grown by 6.1% over the last five years, which is good to see. However, its recent poor performance has wiped out most of the gains it made.

A hard time

There is no sugar coating this, the firm has been hit hard by the current economic climate. Profit warnings come one after the other and that’s exactly what happened to JD earlier this year. As a result, investors have lost the stock.

I’m wary that another profit warning could send the stock further into the doldrums. As the cost-of-living crisis deepens and consumer demand remains weak, navigating choppy waters will surely take its toll in the coming months.

A bright future?

But given the past, what might the future hold for JD? Well, I think it looks pretty positive.

It’s on track to deliver its full-year guidance for the coming 12 months, so if it meets expectations, it could hopefully be the start of a much-needed turnaround.

Management is expecting a pre-tax profit of between £955m and £1.035bn. This will no doubt provide some momentum to its share price.

Moreover, despite a difficult trading environment, JD is still pursuing its expansion plans. While it continues to invest in its online presence, it is also expanding its portfolio of physical stores. Last year it opened more than 200 new stores.

A bargain?

With its share price booming, that means its shares look cheap. Today, investors can trade them at 10 times forward earnings. This is slightly below the footsie average of 11. On top of that, JD’s historical average is around 23. This shows that its shares have value.

Lots of potential

The risk with JD is that its share price just keeps sinking. Especially given the difficult months ahead. I’m expecting big bouts of volatility as a result.

But with its shares looking cheap and strong future growth prospects, I think now may be the time for investors to take a hard look at JD. I think the stock has a lot of potential. If I had the cash, I would buy some shares.

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