Should you buy these 2 retail giants following today's news?

Ocado grocery delivery vans
Ocado grocery delivery vans

Another financial release from JD Sports Fashion (LSE: JD); another cause for its investors to break out the bubbly.

///>

The trainer and tracksuit specialist strode to fresh record peaks above £14 per share on Tuesday after advising that group revenues swelled 20% during February-July, to £970.6m. This powered pre-tax profit 66% higher from the corresponding 2015 period to a whopping £77.4m, setting yet another bottom-line record.

And not surprisingly the company believes it has plenty left in the tank. Chief executive Peter Cowgill commented today that "the favourable trends for athletic inspired footwear and apparel in Europe have continued into this year," adding that "the positive nature of trading in the second half to date is encouraging."

JD Sports has been gradually spreading its tentacles across the UK and Europe, through its store expansion programme as well as via shrewd acquisitions -- the firm acquired 187 stores in The Netherlands after buying up Aktiesport and Perry Sport in March, for example.

And the sports giant is looking to expand its brand much further afield too. Indeed, the business made its first avenues into Malaysia and Australia earlier this year. And JD Sports' robust balance sheet should facilitate further growth.

My bullish view on JD Sports is shared by the City, which expects the retailer to enjoy earnings expansion of 19% and 11% in the years to January 2017 and 2018 respectively. These figures create P/E ratings of 19.2 times and 17.2 times. While nudging above the big-cap average of 15 times, I reckon this is brilliant value given JD Sports' stunning momentum.

Big shop of horrors

Recent trading at Ocado(LSE: OCDO) hasn't been as encouraging however, and the stock was last seen hurtling 14% lower in Tuesday business.

The online grocer has announced that average orders per week galloped 18.9% higher during the 12 weeks to 7 August. But stock pickers tugged at their collars as Ocado announced that the average order size dipped 3.4% from the same 2015 period, to £107.94, reflecting the ongoing 'price wars' between Britain's supermarkets.

And the firm doesn't expect conditions to improve any time soon. Indeed, chief executive Tim Steiner advised that "as the market remains very competitive, we are seeing sustained and continuing margin pressure and there is nothing to suggest that this will change in the short term."

Food colossus Asda is the latest to announce further rounds of price cutting, the firm announcing reductions on essential items like ketchup and meat products by an average of 15% on Friday. And the move came just a few days after Morrisons announced cuts on scores of its own goods.

The number crunchers expect Ocado to record earnings growth of 19% and 20% for the periods to January 2017 and 2018, although I believe these numbers are in danger of significant downward revisions.

And given that these figures leave the supermarket dealing on whopping P/E ratios of 121.5 times and 101.1 times, I reckon there's plenty of scope for a fresh collapse in Ocado's share value.

Avoid these titanic traps

But splashing the cash on Ocado isn't the only rookie mistake stock pickers can make.

There are a multitude of traps share investors can fall into, from timing their trades incorrectly to listening to the wrong information. And this is where The Motley Fool can help.

Indeed, our crack team of boffins has drawn up a report titled Worst Mistakes Investors Make that outlines the key things you should consider before taking the plunge.

Click here to download the report. It's 100% free and can be delivered straight to your inbox.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Advertisement