Stock Analysis

Investors Shouldn't Overlook DICK'S Sporting Goods' (NYSE:DKS) Impressive Returns On Capital

NYSE:DKS
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There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at DICK'S Sporting Goods' (NYSE:DKS) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for DICK'S Sporting Goods, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.23 = US$1.5b ÷ (US$9.0b - US$2.6b) (Based on the trailing twelve months to January 2023).

So, DICK'S Sporting Goods has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 14%.

View our latest analysis for DICK'S Sporting Goods

roce
NYSE:DKS Return on Capital Employed April 28th 2023

In the above chart we have measured DICK'S Sporting Goods' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for DICK'S Sporting Goods

Strength
  • Debt is not viewed as a risk.
  • Dividends are covered by earnings and cash flows.
Weakness
  • Earnings declined over the past year.
  • Dividend is low compared to the top 25% of dividend payers in the Specialty Retail market.
  • Shareholders have been diluted in the past year.
Opportunity
  • Annual earnings are forecast to grow for the next 3 years.
  • Good value based on P/E ratio and estimated fair value.
Threat
  • Annual earnings are forecast to grow slower than the American market.

The Trend Of ROCE

The trends we've noticed at DICK'S Sporting Goods are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 23%. Basically the business is earning more per dollar of capital invested and in addition to that, 127% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From DICK'S Sporting Goods' ROCE

All in all, it's terrific to see that DICK'S Sporting Goods is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing DICK'S Sporting Goods we've found 4 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether DICK'S Sporting Goods is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.