Can Dick’s Sporting Goods Still Offer Investors a Home Run?

With shares of Dick’s Sporting Goods (NYSE:DKS) trading at around $50.71 is DKS an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Dick’s Sporting Goods threw out a double whammy yesterday in regards to news. CFO Tim Kullman announced his retirement. The company also announced a $2 special dividend. This is payable on December 28 to shareholders of record on December 17. It’s estimated that this will cost Dick’s Sporting Goods $254 million. They can afford it, but barely. There is only $294.49 million in cash. A lot of companies are offering special dividends prior to the Fiscal Cliff and tax hikes, but in this case, it looks like a panic move. All it will do is draw in weak longs who will sell down the road.

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Another important bit of news here is that over the past six months insiders have sold over 4 million shares over 17 transactions. Insiders sell for all kinds of reasons, especially with the holidays approaching, but that’s a lot heftier than the average, and it’s coming at a time when the CFO is retiring, which isn’t overly comforting.

The short position of 12.80% is high on this stock, so there are plenty of people who don’t feel good about the long-term potential for Dick’s Sporting Goods. All that said, let’s take a look at some numbers and see if Dick’s Sporting Goods still has legs.

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for Dick’s Sporting Goods is excellent. It’s not quite as good as Hibbett Sports (NASDAQ:HIBB), but it’s much stronger than Cabela’s (NYSE:CAB). In regards to cash vs. long-term debt, Dick’s Sporting Goods and Hibbett Sports both look healthy whereas Cabela’s is highly leveraged. However, keep that upcoming special dividend in mind.

Debt-To-Equity

Cash

Long-Term Debt

DKS

.01

$294.49 Million

$22.74 Million

HIBB

.00

$75.29 Million

$.212 Million

CAB

2.33

$282.38 Million

$3.04 Billion

 

T = Technicals on the Stock Chart Are Strong

Dick’s Sporting Goods has enjoyed a great run over the past three years. While the stock is still seeing gains, there has been a slowdown.

1 Month

Year-To-Date

1 Year

3 Year

DKS

1.35%

40.31%

29.52%

139.10%

HIBB

-1.59%

18.17%

14.60%

168.80%

CAB

4.74%

82.73%

87.60%

280.10%

 

At $51.00, Dick’s Sporting Goods is currently trading slightly lower than its 50-day SMA of $51.17 It’s trading slightly higher than its 100-day SMA of $50.64. And it’s trading moderately higher than its 200-day SMA of $49.24.

 E = Earnings and Revenue Are Strong

It might amaze some people that Dick’s Sporting Goods has been growing revenue consistently for years. While the stores are strategically placed in populated areas, they never seem to be packed. However, the numbers keep improving. Some of this might have to do with Dick’s Sporting Goods growing its ecommerce revenue by 47%.  

2008

2009

2010

2011

2012

Revenue ($)in billions

3.888

4.130

4.413

4.871

5.212

Diluted EPS ($)

1.29

-.36

1.15

1.50

2.10

 

Q3 revenue was up 11% to $1.3 billion YoY, and earnings were up 25% YoY.

10/2011

1/2012

4/2012

7/2012

10/2012

Revenue ($)in billions

1.180

1.612

1.282

1.437

1.312

Diluted EPS ($)

.33

.88

.45

.43

.40

 

T = Trends Support the Industry

Wal-Mart Stores (NYSE:WMT) has been dominating in brick-and-mortar retailers and Amazon (NASDAQ:AMZN) has been dominating in online retailers. Where is a company like Dick’s Sporting Goods supposed to go?

Dick’s Sporting Goods is strategic with the placement of their brick-and-mortar stores. This company likes high-traffic areas where there is no Wal-Mart around. Wise move. And they have recently begun to expand their online presence. While Amazon might take some market share away from Dick’s Sporting Goods, Dick’s Sporting Goods will more than make up for it by taking market share away from smaller online retailers. Dick’s Sporting Goods made two other strategic moves, which were partnerships with Nike (NYSE:NKE) and Under Armour (NYSE:UA). This includes Nike NFL, which has been a huge hit.

Conclusion

Dick’s Sporting Goods has low profit margins, a relatively high P/E Ratio of 24.3, and there are a lot of people betting against the stock. On the other hand, the management for this company is made up of winners, and they always seem to be able to find a solution to a problem.

Perhaps the most telling piece of information is that Dick’s Sporting Goods opened 28 new stores in 2012. Companies don’t open that many new stores if things are going poorly and future prospects are bad. An added bonus is that Dick’s Sporting Goods recently announced they won’t need to be promotional during the holidays, which will save them a great deal of money. This savings probably had something to do with the decision to do ahead with the special dividend. The one scary fact here is the massive amount of insider selling.

Taking all factors into consideration, Dick’s Sporting Goods is a WAIT AND SEE.

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