In this market, I spend most of my time saying “I love the company, hate the stock”. This is one of the rare times I find myself loving the stock, even if I’m not so sure about the company. From a metrics standpoint, this is one of the surest buy’s out there.
Debt: $441M in debt, but $1.37B in cash. So $932M in cash, for a $10B company to have almost in a billion in cash, that’s a powerful statement
Growth: The five and ten year growth has been phenomenal. 33.7% and 19.2%. But most of the growth is recent, doubling in the last year.
Shares outstanding has gone down 25% in the past five years, a great show from management.
The stock is currently trading at a PE of 8.85, however, it is more like a 6.5 if you factor in the $932M in available cash.
If you believe that DKS‘s recent sales boom is sustainable. If you believe this wasn’t just because of COVID and stimulus checks, then how can you not buy the stock? Getting a 19% grower for a PE of 6.5 is just insane in this market. It is the best deal I’ve found.
But that is the rub. I like Dick’s. I like some of the things they are doing. However, I’m afraid that their recent 50% growth is not sustainable. Stimulus checks are spent by now. Two years of sports buying was compressed into one. Amazon is still coming for them. Academy Sports is still coming for them. This is a competitive landscape.
Upside: If earnings grow another 15% in 2022, showing that this isn’t just a COVID boom, I could see the stock being worth $313. That’s a 172% gain.
Downside: If earnings fall back to pre-COVID levels of $300M, the stock could fall 80%.
I’m torn. I don’t know what is driving this earnings boom. Is it supply chain issues? Inflation? Better Dick’s stores? If I knew the answer, I could maybe make the right decision. For now, I’m just going to watch and wait.