The share market is capable of throwing up some pretty spectacular returns at times. Take FTSE 250 stocks JD Sports Fashion (LSE: JD) and Rightmove (LSE: RMV) for example. A £5,000 investment in each of these companies just a decade ago would now be worth a total of just under £185,000, a life-changing amount of money.
So is too late to jump on board these sensational performers or can the upwards momentum continue?
The trend is your friend
I have to admit, I’ve been quite surprised at the unbelievable rise of JD Sports Fashion over the last few years. I also feel a little frustrated, as while shares in JD have soared to breathtaking heights, my holding in rival Sports Direct has been a disaster.
While Sports Direct has struggled in recent years for a variety of reasons, JD has managed to consistently do the business and revenues have more than doubled over the last five years from £884m in FY2011 to £1,822m in FY2016. Shareholders that have stuck with the company over the last 10 years will be laughing all the way to the bank, with the stock returning an incredible 1,940%, or 2,440% if dividends were reinvested.
Despite uncertainty surrounding the UK economy, momentum at JD is showing no signs of slowing down. Interim results in September for the 26 weeks to 30 July were impressive, with the company reporting revenue growth of 20%, 10% growth in like-for-like store sales and a 69% increase in basic earnings per share. And JD released a further positive trading announcement last week, stating that trading momentum during the Christmas period had been strong and that it expects profit before tax and exceptional items to be ahead of consensus market expectations by 15%.
City analysts now forecast FY2017 revenue and earnings per share of £2,217m and 17.9p, meaning that at the current share price, JD trades on a forward-looking P/E ratio of 19.8. In my opinion, that price multiple doesn’t look overly off the mark, given the company’s impressive growth history in recent years. There’s a saying in the investment world that “the trend is your friend” and there’s no doubt that the trend right now at JD Sports Fashion is clearly upwards.
Brexit uncertainty
Property sales platform Rightmove has also been an outstanding performer over the last decade, returning a huge 888% or 1,050% with dividends reinvested.
Rightmove enjoys a dominant position among UK property websites, with a 77% market share enabling the company to generate enviable revenue growth, the top line increasing from £81.6m in FY2010 to £192.1m in FY2015.
City analysts are bullish on the prospects for the next few years, with consensus estimates for FY2016 revenue and earnings of £217.6m and 137p respectively. However, on a forward-looking P/E of a lofty 29.5, I’m inclined to be a little cautious towards the stock in the short term. There’s still considerable uncertainty regarding Brexit implications for the UK property market, and a market downturn could result in estate agency closures, making it more difficult for Rightmove to increase its prices.
While I believe that Rightmove has solid long-term growth prospects, I’m not sure the company will be able to generate the same levels of shareholder returns going forward as it has in the last decade.