Here's Why I Think DICK'S Sporting Goods (NYSE:DKS) Is An Interesting Stock
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like DICK'S Sporting Goods (NYSE:DKS). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
See our latest analysis for DICK'S Sporting Goods
DICK'S Sporting Goods's Improving Profits
Over the last three years, DICK'S Sporting Goods has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like the last firework on New Year's Eve accelerating into the sky, DICK'S Sporting Goods's EPS shot from US$6.27 to US$17.55, over the last year. Year on year growth of 180% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. DICK'S Sporting Goods shareholders can take confidence from the fact that EBIT margins are up from 9.6% to 17%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for DICK'S Sporting Goods.
Are DICK'S Sporting Goods Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We did see some selling in the last twelve months, but that's insignificant compared to the whopping US$3.0m that the Executive Chairman, Edward Stack spent acquiring shares. The average price paid was about US$110. The quantum of that insider purchase is both rare and a sight to behold, not unlike an endangered Amur Leopard in the wild.
On top of the insider buying, it's good to see that DICK'S Sporting Goods insiders have a valuable investment in the business. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$2.7b. That equates to 32% of the company, making insiders powerful and aligned with other shareholders. Very encouraging.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Lauren Hobart is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$4.0b and US$12b, like DICK'S Sporting Goods, the median CEO pay is around US$6.8m.
The DICK'S Sporting Goods CEO received US$4.8m in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add DICK'S Sporting Goods To Your Watchlist?
DICK'S Sporting Goods's earnings have taken off like any random crypto-currency did, back in 2017. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest DICK'S Sporting Goods belongs on the top of your watchlist. You still need to take note of risks, for example - DICK'S Sporting Goods has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
The good news is that DICK'S Sporting Goods is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
