Why Shares Of Dick's Sporting Goods Soared This Week
Shares of Dick's Sporting Goods (NYSE: DKS) were soaring this week, according to data from S&P Global Market Intelligence. The sports apparel and equipment retailer is posting strong comparable sales growth yet again, driving its earnings to new heights. It has been on a tear in recent years, up over 500% in the last five years alone.
As of 1:26 p.m. ET, shares of the stock are up 17.2% this week. Here's why.
Improved sales, trimmed-down footprint
In the quarter ending May 4, Dick's Sporting Goods posted 5.3% comparable sales growth and 6.2% overall revenue growth. Comparable sales growth measures the revenue growth from existing stores. A 5.3% positive reading shows investors that Dick's is driving traffic and more spending at its stores with its focus on sports retailing.
The company has trimmed down its real estate footprint in recent years and is now focused on less store density and more online sales. In Q1, Dick's had a real estate footprint of 39.4 million square feet, down from 39.2 million a year ago. Higher sales and lower real estate costs is a way to drive earnings higher, which is what Dick's is delivering. Earnings per share (EPS) are up 262% since before the pandemic, which is great news for shareholders.
For the full year, management has raised its comparable sales growth guidance from 1%-2% to 2%-3%. This would be a slowdown from the first quarter but still strong growth. Dick's Sporting Goods is in a strong position operating as the leader in its retailing niche of sporting goods at the moment.
Is the stock a buy today?
After this week's pop, Dick's Sporting Goods stock now has a price-to-earnings (P/E) ratio of 18.5. This is close to a 10-year high if you exclude a period of unprofitability during the COVID-19 pandemic. In 2022, it traded at a P/E well below 10 for many months.
A higher P/E means higher expectations for earnings growth and durability in future years. Dick's seems to have a durable business, but with no store growth and single-digit comparable sales growth it is hard to see how this business will have a significantly larger sales base five to 10 years down the line. For that reason, investors should temper their expectations for Dick's stock. A low-growth business that has gone up 500% in the last five years will likely not go up 500% over the next five years.
Should you invest $1,000 in Dick's Sporting Goods right now?
Before you buy stock in Dick's Sporting Goods, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Dick's Sporting Goods wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $677,040!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of May 28, 2024
Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
