The stock up 100% in the last year, is ready to make another push upwards

 This is our third write up on Dick's Sporting Goods, as they've absolutely blown past our price targets! First we wrote about them (August of 2021), their price was $53.

Fast forward to today and the stock is now trading at $111 (110% gain)!

Given how rapidly the stock has risen in value, we are choosing to revisit our analysis and update our price projection!

On the surface, not much has changed since the last time we wrote about them. Same store sales & e-commerce growth are still increasing. And the company is trending in the right direction. However, there are few choice items to look at underneath the surface which will give us some insight into how the stock could trend over the upcoming months. Let's break it down below:

Dick's Sporting Goods Preface:

While we still stand firm on our overweight thesis, the new information that we've recently uncovered is causing us to increase our price target again! Even with the stock up over 130% over the last year, we still think Dick's Sporting Goods (DKS) has room to run further. While we are selling a portion of our holdings of the stock (as we're up more than 100% in a year), we are holding onto a good chunk in order to continuously participate in the upside!

With that context, here is the new information and how we're interpreting it: 

Operating Metrics:

• Sales Growth: The first number we've analyzed is their sales growth. While they've always had strong numbers, the most recent earnings report suggests that they can potentially enter into a new generation of growth. While their historical sales per store growth has been around 1.5%, the combination of industry demand for athletic apparel as well as their specific e-commerce push, makes us believe that they can get closer to 4%-5% CAGR (compound annual growth). While this would be a massive jump from their historical numbers, their most recent reports suggests this is highly achievable. Should they get on track to do so, the stock price would jump up significantly.
• Gross & Net Margins: Margins is another metric we look at very intensely. Especially in retail, this number is extremely important to note. As we've mentioned before it shows how much money DKS can retain per good sold.
• From our in depth analysis, we see that DKS has a real chance to hit 31% margins by 2023. If they start doing this, paired with the increase in growth above, we see this as a key indicator that they'll hit their price target with ease. While it'll obviously take awhile to get there, the key is that margins start trending towards that projection over this year and next. By shifting their focus more towards private label brands, e-commerce and lower total employment, we believe this should start materializing soon.
• Share Repurchases: The last metric we see that is encouraging is their share repurchases. While this is not necessarily an operating metric, it is something that artificially engineers their valuation and stock price. When you combine significant repurchases, with high revenue growth and margin expansion, you're looking at a company that has a real chance to continue their stock price path upwards. When looking at their balance sheet (where their cash is held), we see that DKS has roughly 2 billion dollars! With this number bound to increase due to positive free cash flow, DKS could have $2-$4 billion dollars to start repurchasing shares over the next several years.

When comparing this to their current market-cap of only $10B, we estimate that significant share repurchases would have a material effect on their stock price given the amount of shares they'd be able to take off of the market.

• This last point is extremely crucial to note. Most companies, of their size, do not have balance sheets this large. Pair that with a company who does not need to fund any significant projects over the coming quarters and we see a real path towards artificially boosting their stock price via these repurchases. This is a can't miss event, once this starts occurring.

Dick's Sporting Goods Wrap-up:

The thesis for DKS over the next several quarters and years is clear. This is a business that is actually shifting towards DTC, and the dividends are already starting to pay off. Growth is impressive (revenue and margin) and with such a large balance sheet, DKS is in a great position to make smart choices to warrant an increase in valuation. We're looking forward to the upcoming quarters to see how this plays out and therefore are excited about continuing to be holders of the stock! Should they also hit our price target, we think there is a real chance for them to also surge through to our bull case - which is $150!

Stay tuned for more updates!

Ticker: DKS

Price Target: $130 (20% upside)

Target Date: 8-10 Months

Rating: Overweight