Sports Direct — first-half earnings due 8 December
It has been an atrocious year for Sports Direct shares, as the harsh light of investigation into the firm’s working practices causes one of the great bull markets to come to a terrible end. From £7.40 at the beginning of December, the share price collapsed to 250p by the summer. Since then, it has recovered to above 300p, but a fresh investigation in late November suggests the firm is not entirely out of the woods.
First-half earnings are scheduled for 8 December, but are not expected to make pleasant reading. Revenues are expected to rise 9.5% year-on-year, but falling margins are likely to make a serious dent in earnings, which are expected to fall by 24% to 16.5p per share.
At 15.3 times forward earnings, the shares no longer look ‘bargain basement’ cheap, as they did in the summer. A company like Sports Direct will not lose its dominant position overnight, but it may face an uphill task reclaiming customers. For the long-term, the shares might look compelling, especially if Mike Ashley begins to look at taking the firm private.
The shares have rallied strongly off the lows of the year, and have arguably formed a good base above 250p. Now we need to see them break the November highs of 330p. The consolidation appears to be over, with only a move below 250p negating the longer-term bullish case.