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I was reviewing the list of top % gainers on the NYSE this morning and came across an old favorite of mine, Dick's Sporting Goods (DKS), which is currently trading at $53.21, up $4.29 or 8.77% on the day. DKS was actually one of the first stocks I picked on this blog, having selected Dicks for Stock Picks Bob's Advice on May 22, 2003, almost 3 1/2 years ago! At that time, DKS was trading at $29.75. However, Dick's had a 2:1 split on April 6, 2004, making my effective pick price actually $14.88. With today's price of $53.21 (too bad I don't own any shares or options on this stock!), this represents a gain of $38.33 or 258%!
Let's take a brief look at this company and see why I think it still deserves a place on this blog.
1. Was there any news to explain today's big move higher?
Yesterday, after the close of trading, Dick's announced 3rd quarter 2006 financials. Revenue climbed strongly to $708.3 million from $582.7 million. This exceeded analysts' expectations for $679 million in revenue. Net income came in at $7.8 million, up from $4.18 million, or $.14/share, up from $.08/share last year. Analysts had expected per-share income of $.05/share. In addition the company raised per-share income for 2006 to $1.95 to $1.98, up from prior guidance of $1.84 to $1.88. Analysts had been looking for $1.88/share for the year. Thus, the company performed what I call a "trifecta-plus" with increasing revenue, earnings, exceeding expectations for both, and raising guidance for upcoming financial reports. A really great report imho!
2. Latest quarter?
See above :).
3. Longer-term results?
Reviewing the Morningstar.com "5-Yr Restated" Financials on Dick's: we can see some very nice information. First of all, revenue has steadily grown from $1.08 billion in 2002 to $2.63 billion in 2006 and $2.81 billion in the trailing twelve months. Earnings have increased steadily from $1.04 in 2004 to $1.76 in the TTM. And the total number of shares have actually declined recently after increasing from 45 million shares in 2004, they grew to 50 million in 2006, and apparently (?) dropped to 37 million in the TTM.
Free cash flow which dropped from $32 million in 2004 to $3 million in 2005 has been increasing recently to $58 million in 2006 and $72 million in the TTM.
The balance sheet looks solid with $32.9 million in cash and $712 million in other current assets, which when compared to the $519.4 million in current liabilities yields a current ratio of almost 1.5.
4. What about valuation?
Looking at Yahoo "Key Statistics" on Dick's: company is a mid-cap stock with a market capitalization of $2.71 billion. Trailing p/e is 30.43, forward p/e is 23.39 (fye 28-Jan-08) and PEG is reasonable at 1.07. Dick's is in the "Sporting Goods Stores" according to the Fidelity.com eresearch website. Within this group, Dick's is reasonably priced with a Price/Sales ratio of 1.0. Leading this group is another old favorite of mine, Hibbett (HIBB) at 2.0, then Dick's at 1, Cabela's (CAB) at .8, Golf Galaxy (GGXY) also at 0.8 (which Dick's just announced it was acquiring), and Big 5 (BGFV) at 0.6.
Dick's also does ok with the Return on Equity (ROE) figures which is led by Big 5 at 34.6%, Hibbett at 27%, then Dick's at 22.6%, Cabela's at 11.4% and Golf Galaxy at 10.7%.
Returning to Yahoo, we find that there are 50.87 million shares outstanding with 37.58 million that float. As of 10/10/06, there were 5.46 million shares out short representing 10.8% of the float or 9.6 trading days of volume. This is quite significant, and we may well be representing a short squeeze today as the short ratio at 9.6 is well over my own 3 day rule for significance. With the great news on earnings coming out last night I suspect there are a lot of short sellers who now are scrambling to close out their trades, shares that they had already sold without owning them betting on worse news than what we got last night!
As noted already, the stock split 2:1 on 4/6/04, and the company does not pay a dividend.
5. What about the chart?
Looking at a "Point & Figure" chart on Dick's from StockCharts.com, we can see an incredibly powerful chart with the stock appearing a little over-extended but showing no evidence of any significant weakness. This is an amazing chart with the stock climbing steadily from $6.50 in late 2002 to the current level of $53.
6. Summary: What do I think?
In a word, GREAT. This is a stock that I wish I had purchased in 2003! It still looks great. Let's review a few of the things that make me interested in this stock. First of all, it is making a strong move higher today in the face of a rather anemic trading environment. It is doing this in spite of announcing an acquisition of Golf Galaxy, which is apparently being favorably received by the "street". They reported terrific earnings, beating expectations and raising guidance. They have a beautiful Morningstar report, with steadily increasing earnings and revenue, growing free cash flow, and a solid balance sheet. Valuation-wise the company isn't too richly valued and appears to have room for an expansion of multiples. Finally the chart looks nice and to top it off there are a lot of short-sellers out there who are being squeezed. Looks like a positive picture to me!
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