The City tends to see things in a very black and white way. And if the stock market continues to price established businesses at levels that assume they won’t exist much longer, then eventually someone else is going to see opportunity in them.

The City tends to see things in a very black and white way. And if the stock market continues to price established businesses at levels that assume they won’t exist much longer, then eventually someone else is going to see opportunity in them.

At this week’s prices, you could buy JJB - a company that made sales of £370m last year - for less than Mike Ashley’s Newcastle United got for Andy Carroll, a footballer with one England cap. HMV - a company expected to make profits of £40m this year - is valued at about the same as two Fernando Torres’s.

Those numbers might tell you about as much about the absurdity of the transfer market as the value the City puts on retailers, but what they also say is that at the moment both these companies are priced to fail.

However, while both face immense challenges, there is still value in both the businesses and the brands. First HMV. It owns two brands that dominate their categories. Admittedly they’re the most challenged categories in the market and sales through stores aren’t going to grow much, but by thinking beyond bricks-and-mortar retail, it’s not hard to envisage a future for HMV and Waterstone’s.

Simon Fox has laid the foundations for HMV to be at the heart of the entertainment industry, but it’s only just begun. More importantly, neither chain has really cracked digital. Both brands need to move even faster to build a compelling online offer combining retail and community.

This needs to be built around a smaller core group of really good stores. In the big cities both chains have multiple stores, which the company has started eliminating, but the business needs to be braver and combine HMV and Waterstone’s to create Fnac-style superstores with a bit of atmosphere in major cities and shopping centres.

The urgency of JJB’s problems is greater, but if anyone can create value out of it, JD can. Its management has shown time and again its ability to take struggling retail brands and give them a point of difference. JJB is in dire straits and has been taken to the cleaners by Sports Direct, but crucially it retains the support of the big sportswear brands - including those of big JD shareholder Pentland.

In its highly unassuming way, JD has emerged as one of the best specialist retailers of recent years, and its ability to absorb businesses as diverse as Allsports and Bank to create a sports-fashion powerhouse has been one of the great retail reinventions of the past decade. While it’s far from a certainty and would not be without risk, a takeover of JJB would show just how far it has come.

tim.danaher@retail-week.com