DKS Chairman Sends Bullish Message to Bears

Dick’s Sporting Goods (DKS) chairman Ed Stack sent a bullish message to the bears recently, buying up shares of the company.

“The Chairman of Dick’s Sporting Goods thumbed his nose at the bears by putting $25M of his own money to work buying more DKS shares that he doesn’t need,” said Quo Vadis President John Zolidis, who follows the company closely. 

“Analysts think DKS’ EPS will dive 27% next year (according to FactSet),” Zolidis explained. “ASO earnings were being modeled down 12% (prior today’s big increase in guidance for FY21). ASO went public in October last year and has already returned $350M to investors this year via share repurchase. That’s 8.7% of the current market cap. What does the ASO Board and the DKS Chairman see that the Street is missing?”

Only time can provide a definite answer to Zolidis’ question. Meanwhile, insider buying is usually a vote of confidence in the company’s shares. It’s one of the metrics in the TipRanks’ Stock Analysis system, which gives DKS a Smart Score of 7 out of 10, citing insider buying and strong technicals and fundamentals.

I am neutral on the stock. (See Analysts’ Top Stocks on TipRanks)

Riding Solid Consumer Spending

DKS, together with competitors like Academy Sports and Outdoors (ASO), has been riding a strong demand for its products driven by a couple of factors. One of them is the growing demand for sports equipment, due to a more health cautious population. Another factor is the easing of the pandemic that brought consumers back to stores in recent months.

The purchase of the company shares comes a few days after the company held an upbeat investor conference held by Lauren R. Hobart, president and CEO of the company. 

Hobart announced a 12.2% same-store sales increase year-over-year in Q3 2021, on top of a 23.2% comp the year prior, and a 6% comp the year prior to that.

EPS came in at at $3.19, up 59% to last year and 513% to two years ago.

“I’ll sum up by saying we are a completely different company than we were back in 2017, and the pandemic has only helped us accelerate that transformation,” Hobart added.

Wall Street’s Take

Wall Street has been on the same side as DKS management. The company’s shares have gained 89.5% year-to-date, compared to 25% of the SP&500.

The stock has a Moderate Buy consensus rating on TipRanks. The average Dick’s Sporting Goods price target of $158 implies 48.7% upside potential.

What Can Go Wrong

Past performance isn’t a guarantee of future performance, so goes the old adage on Wall Street. That’s especially the case for high-flying companies in cyclical sectors, which sell discretionary items, and therefore, are at the whim of business cycles.

All it takes is another recession to crush demand for products like sports and fitness equipment, though that seems unlikely at this point.

Then there’s inflation, the rising of prices of basic goods like food and energy, which keeps on chipping away a larger part of consumer budgets, leaving less money available for discretionary items.

Bottom Line

DKS is in the right business at the right time, provided that another recession or another inflation spike doesn’t spoil the mood among Wall Street investors.

Disclosure: At the time of publication, Panos Mourdoukoutas did not have a position in any of the securities mentioned in this article.