Stock Talk is a way for me to fill you in on interesting and potentially profitable investment opportunities. For today’s company, the snippet below will outline what initially attracted me to it, Me Vs. Consensus, personal expectations, and why I think you should take a second look. This post is by no means a formal recommendation, just a way of putting new ideas into your scope.
I don’t cover all of my reasonings for investment/lack of, just a few important ones that will get your gears turning and put you on the right track.
Note: I have elected to leave out all quantitative analyses in these posts as I want the focus to be on the concepts and ideas regarding the companies. Please complete your own individual analysis before making any investment decisions (feel free to shoot me an email if you would like to learn about how I perform mine).
- Dick’s Sporting Goods (DKS)
Let’s get started.
Dick’s Sporting Goods (DKS)
Dick’s Sporting Goods in an American household name, a staple in the sporting-goods retail market, and a massive force to be reckoned with. Which is why I was surprised to see that at the start of September 2017, they were down 52% through their past 52-week period, they were trading at a PE multiple of 8.5, and they were getting nothing but bearish outlooks from Wall Street. From what I could see, they had reported increased revenues over the past several quarters (during a lean-operation shift), they had opened 3-new locations (in September alone), and they had just launched a newly-designed online store that was cutting costs like crazy. Also, the sporting goods industry had been booming (and still is – see retail sales in B-USD below), and as an established firm, they ought to be well positioned to take advantage. So, in sight of all that, I decided to dig a little deeper and figure out what was going on.
It looked to me that Dick’s had fell victim to the ‘Amazon shadow’ (I coin this if anyone ever wants to use it!), and the growing fear in the retail market had led investors to believe that no one was safe. There was also fear that Nike, who announced they would be taking shoes out of stores to focus on their own website’s sales, would hurt Dick’s profitability. I disagree with both.
To start, Amazon’s shift into the sporting goods/athletic-wear market will be slow and painful, as the creation of their new personal brand will take tons of time, the market competition is huge, and Dick’s offerings are just too vast. Second, Dick’s now operates an online retail store/ catalogue that allows customers to view and buy/return products, just as affordable and efficiently as Amazon. PLUS, consumers can stop in at any physical Dick’s locations to actually interact with/try on the products. This led me to the initial belief that the Amazon takeover of sporting retail was being too over-compensated for, at least in the case of Dick’s. This isn’t all that excited me though.
Nike (arguably the biggest shoe company in the world) announced that they’d be taking shoes off of store shelves to focus on their personal website sales. Uh oh? No. It’s important to note that footwear makes up a mere 19% of Dick’s revenue, and only a portion of those sales are actually attributed to Nike. Also, it’s important to note that hard-goods (thing such as cleats/skates/helmets/bats/etc. – sporting equipment) make up the biggest percentage of Dick’s revenue – 45%. These are all products that consumers need to try on/get fitted for/experience in person – not products that can be ordered online effectively. The value of this is huge, as the functionality/experience of sporting equipment works as a moat for Dick’s against its online competition. PLUS, the requirement for customers to visit the stores for these goods will lead to crossover sales in other categories (such as shoes). This wasn’t the case when Dick’s had a website operating at half mass, but now that they are a player in the online world, they are well positioned for success.
Dick’s has turned their stores into one-stop-shops that offer both sporting-goods and experiences. I believe there will always be a place for physical retail, but that as online retail grows only the ones growing with it will succeed. Their combination of in-store features (eg. putting greens/courts/various other sports terrains) and an online presence will allow for a proper fight in the digital future.
Bottom Line: Dick’s has Amazon matched in the online retail world, beat in the physical retail world, and will survive just fine with a lack of Nike runners on their shelves. The market (and Wall Street) are paying too much attention to the craze surrounding e-commerce, and are leaving a valuable retail stalwart, well protected from competitors (now even online), way undervalued.
There are a variety of other reasons why Dick’s was a buy for me, however, these ideas offer a head start and hopefully act as a stepping stone for your own decision making.
DISCLAIMER: I have been following/researching Dick’s Sporting Goods for months and personally invested at the beginning of November, therefore, all of the opinions stated are that of an investor confident in the companies future. Please do your homework before making any investment decisions.
DKS at time of recommendation: $29.92 (Dec. 7 close)