Dick’s stock price has taken a beating over the past six months, shedding 37.6% of its value and falling to $142.86 per share. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Following the pullback, is this a buying opportunity for DKS? Find out in our full research report, it’s free.
Why Does DKS Stock Spark Debate?
Started as a hunting supply store, Dick’s Sporting Goods (NYSE:DKS) is a retailer that sells merchandise for traditional sports as well as for fitness and outdoor activities.
Two Positive Attributes:
1. New Stores Opening at Breakneck Speed
A retailer’s store count influences how much it can sell and how quickly revenue can grow.
Dick's sported 3,104 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 131% annual growth, among the fastest in the consumer retail sector.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
2. Surging Same-Store Sales Show Increasing Demand
Same-store sales is a key performance indicator used to measure organic growth at brick-and-mortar shops for at least a year.
Dick’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 3.5% per year.
One Reason to Be Careful:
Low Gross Margin Reveals Weak Structural Profitability
At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.
Dick's has bad unit economics for a retailer, signaling it operates in a competitive market and lacks pricing power because its inventory is sold in many places. As you can see below, it averaged a 34.2% gross margin over the last two years. That means Dick's paid its suppliers a lot of money ($65.78 for every $100 in revenue) to run its business.
Final Judgment
Dick's has huge potential even though it has some open questions. After the recent drawdown, the stock trades at 12× forward P/E (or $142.86 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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