Sports Direct's reputation suffers

Sports Direct has been in the news for the wrong reasons recently, as questions have been raised over how its staff are treated.

Sports Direct
Source: Bloomberg

Even though the retailer disappointed the market earlier this month when first-half profits missed expectations, the firm stated it will achieve its full-year target.

Sports Direct will announce its full-year numbers in July 2016, and traders are anticipating revenue of £2.91 billion and adjusted net profits of £254 million. These estimates equate to a 2.8% rise in revenue and a 10% increase in adjusted net income. Dealers are predicting a second-half revenue of £1.43 billion, and that would represent no change from the first-half revenue.

Despite the negative press coverage, the company is in good shape. Revenues at the firm are virtually flat but when you take into account the impact of the football World Cup in the previous year it is still encouraging.

The business is embracing e-commerce and online sales are increasing at a fast pace and now represent a sizeable portion of total revenue. The company’s expansion into continental Europe is making headway, and the retailer is planning on expanding its empire Down Under with operations in Australia and New Zealand.

The UEFA European Championship in France, and the Olympics in Rio de Janeiro next year will stoke up sporting enthusiasm and Sports Direct will be sure to capitalise on the highly-watched events.

Equity analysts are bullish on Sports Direct, and out of the 13 recommendations, eight are buys, three are holds, and two are sells. The average target price is £7.61, which is 33% above the current price. Investment banks are bullish on JD Sports, and out of the five recommendations, four are buys and one is a hold. The average target price is 7.9% above the current price.

Technical analysis from Joshua Mahony MSTA, Market Analyst at IG.

Sports Direct investors have had a somewhat drab five months, with shares selling off with increasing intensity as we approach the end of 2015. The weekly chart highlights this potential topping pattern best, with £5.59 the crucial support level which is expected to dictate play going forward. A closed daily candle below £5.59 would complete a double-top, with a projected target of £1.93.

However, for now the crucial thing to note is that we see £5.59 as a pivotal level, where a close below could provide a renewed emphasis on the recent downtrend. Alternately, any reversal patterns around this major support level would worth watching out for.

Support levels of note are £5.59, £5.00, £4.47, £4.16 and £1.93. Alternately, key resistance levels to watch out for are £5.99, £7.40 and £8.20.

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