Trainer and tracksuit emporium Sports Direct (LSE: SPD) has seen its share price sink over 5% so far in Wednesday trading, the result of news that chief executive Mike Ashley has once again slashed his stake in the firm.
Goldman Sachs advised yesterday that it was selling 15.4 million ordinary shares on behalf of Ashley, cutting the company founder’s holding by 2.6% to around 55% and raising £117m in the process. This is the first of many such moves by the billionaire businessman in recent years — indeed, Ashley’s stake stood at just over 68% only two years ago.
Retail conditions remain supportive
However, Ashley’s latest disposal does not suggest that the sportswear mogul is losing confidence in the growth prospects of the firm, in my opinion. While other share sales were put down to improving the stock’s liquidity, I believe that this week’s sale is most likely related to Ashley’s attempted takeover of Rangers Football Club in Scotland.
Indeed, I have long argued that Sports Direct is in great shape to enjoy resplendent growth in the coming years. Many of the retailer’s core products — from trainers and football jerseys through to golf clubs and bikes — are traditionally expensive products, of course. So Sports Direct’s portfolio of cheaper, in-house labels such as Dunlop and Karrimor are striking a chord with budget-conscious shoppers in much the same way as Aldi’s and Lidl’s ‘own brand’ products are with grocery customers.
On top of this, Sports Direct is also expanding into Europe following its acquisition of Austria’s Sports Eybl in 2013, a move that has greatly enhanced its warehousing facilities on the continent. While this is likely to bolster the firm’s long-term growth prospects, in the meantime Britain’s buzzing fitness craze — combined with rising income levels and falling inflation — should boost activity at the checkout.
Earnings expected to sprint higher
This is a view shared by the City’s army of analysts, who expect Sports Direct to continue clocking up double-digit earnings expansion well into the future. Indeed, the business is expected to report growth of 16% for the year concluding April 2015, and advances of 14% and 15% are pencilled in for fiscal 2016 and 2017 correspondingly.
These figures push the firm’s P/E multiple of 19.5 times for 2015 to 17 times for next year and just 14.7 times for 2017 — any figure around or below 15 times is widely considered terrific value for money.
And I reckon that today’s share price weakness provides a fresh entry point for growth-hungry investors. Given Sports Direct’s long-standing pedigree of generating massive annual earnings progression, and supportive retail backdrop in its core UK markets and increasingly abroad, I expect the company to continue delivering exceptional shareholder returns.