Questor: difficult market conditions ahead convince us to bank JD profits now for the win

Director dealings are an important consideration for some investors. After all, directors are likely to know more about the state of the company they work for than anyone else.

Moreover, their buy-and-sell decisions are made using their own cash. As a result, some investors believe director dealings offer an insight into how a firm’s shares will perform in future.

However, in Questor’s view, knowing a great deal about a company does not necessarily equate to having an accurate view on its investment prospects.

Indeed, there is a great difference between thriving in the corporate world and being a successful investor. Furthermore, director dealings can be due to personal circumstances that do not reflect a company’s investment prospects.

As such, the recent decision by JD Sports Fashion’s (JD) executive chairman, Peter Cowgill, to sell around half his stake in the firm does not have a large bearing on our decision to downgrade the retailer from “hold” to “sell”.

Rather, our updated advice is based on an evolving industry outlook that could create increasingly challenging trading conditions for the business.

Notably, the prospects for consumers across the company’s key markets of the US, UK and rest of Europe are rapidly changing due to high levels of inflation.

For example, inflation has reached its highest level for 40 years in the US and has surged to a peak not seen in the UK since 1992. Meanwhile, eurozone inflation recently spiked to a record level.

Although wage growth could help to mitigate some of the ill effects of high inflation, a rapidly rising price level is likely to put severe pressure on discretionary incomes.

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