Dick’s Sporting Goods (DKS)

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Key Statistics

Enterprise Value = $3.505 billion

Operating Income = $461.74 million

EV/Operating Income = 7.59x

Earnings Yield = 9%

Price/Revenue = .69x

Debt/Equity = 28%

Debt/EBITDA = .71x

The Company

Dick’s Sporting Goods is a large sporting goods retailer. They operate 797 stores in the continental United States. In addition to the primary Dick’s stores, they also own Field and Stream and Golf Galaxy.

Sentiment

The stock is currently despised by the market, down 47.9% in the last year. Dick’s is undergoing the same pressures that are affecting all retail players. In the last year, same-store sales have declined and margins have been under pressure.

My Take

Dick’s Sporting Goods is currently priced for oblivion. Usually, when you see a company this cheap, there should be absolutely terrible news emerging from the stock.

In the case of Dick’s, the news hasn’t even been that bad when compared to the reaction in the market. The bad news has been pretty tame: in the last quarter, the company made 35 cents a share compared to 44 cents a year ago. This hardly seems like a case for Armageddon. Earnings were down because margins are under pressure.

While they have many physical retail locations, they also have a decent e-commerce platform. 12% of their sales occur online. In fact, e-commerce sales increased by 16% in the most recent quarter, helping increase their total sales from a year ago.

A nice and growing e-commerce platform, increasing sales, not a mall anchor, not totally concentrated in apparel. It looks to me like Dick’s Sporting Goods is actually one of the better companies in the retail sector and it is priced like it is one of the worst.

The company has very low debt levels in comparison to its assets and earnings and is steadily producing free cash flow, even outside of the holiday season. Most importantly, they are returning capital to shareholders. Common shares have declined by 5.7% in the last year and the stock currently boasts a 2.29% dividend yield. In the last five years, common shares have declined by 13%.

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.

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