When I last looked at sports and leisurewear retailer JD Sports Fashion (LSE: JD.) in April, the shares were hitting new highs. The group's momentum seemed unstoppable.
Of course it did stop. After hitting a 52-week high of 462p, the stock lost nearly 30% of its value in June and July.
The shares have since recovered some of their losses and last week's interim results revealed that sales rose by 41% to £1,367.2m during the first half, while operating profit climbed 33% to £103.3m.
JD has now announced plans to combine with rival Sport Zone in Spain and Portugal, giving the firm the opportunity to become the second-largest player in these markets. Is this growth machine still alive and well?
New stores drive growth
Most of the growth seen during the first half came from 40 new store openings. Like-for-like (LFL) sales growth in UK and Ireland stores was 3%, while in mainland Europe it was 7%. These are solid figures, but are much lower than the double-digit LFL figures reported by JD over the last few years.
The planned deal to combine with Sport Zone should help to maintain sales growth and boost profit margins. Sport Zone has 140 stores in Iberia and generated sales of EUR226.7m last year. JD already has 171 stores in Iberia, and the combined group will be the second-largest sports retailer in the region.
Although this deal seems promising, it's worth noting that JD will only have a 50% stake in the combined group. Its effective store count will actually fall slightly, to 155. Any gains will be dependent on sales growth and cost-cutting.
As things stand, JD shares trade on a forecast P/E of 17 for this year. Earnings growth of 10% is expected next year, giving a P/E of 15.5. This valuation seems reasonable, so I'd hold for now.
A surprising success
One of the most successful stocks in my own portfolio this year is construction and infrastructure firm Morgan Sindall Group (LSE: MGNS). This £590m group has risen by 77% so far in 2017, as it's delivered a succession of strong results and upgraded guidance.
August's interim results showed that revenue rose by 14% to £1,307m during the first half, while the group's operating profit rose by 39% to £24.3m. Net cash at the end of the period was £97m, £61m higher than at the same point last year.
This positive cash generation is an important indicator of progress in my view, as it suggests that the group's reported profit rise is being backed by genuine cash flow. This isn't always the case with growth businesses.
Much of the group's growth appears to be coming from its Fit Out division, which provides refurbishment and interior fit-out services for offices and commercial premises. Adjusted operating profit from this division rose by 27% to £14.6m during the first half.
My concern here would be that this type of work could collapse in the event of a recession. However, the group's record order book for fit-out work suggests the economy is in good shape at the moment.
Morgan Sindall shares don't look overly expensive to me. The stock trades on a forecast P/E of 12 and offers a prospective yield of 3.3%. I plan to continue holding my shares.
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Roland Head owns shares of Morgan Sindall Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.