Stock Analysis

Is Now The Time To Put DICK'S Sporting Goods (NYSE:DKS) On Your Watchlist?

  •  Updated
NYSE:DKS
Source: Shutterstock

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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In contrast to all that, I prefer to spend time on companies like DICK'S Sporting Goods (NYSE:DKS), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for DICK'S Sporting Goods

How Fast Is DICK'S Sporting Goods Growing Its Earnings Per Share?

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like the hint of a smile on a face that I love, growing EPS generally makes me look twice. You can imagine, then, that it almost knocked my socks off when I realized that DICK'S Sporting Goods grew its EPS from US$4.51 to US$16.09, in one short year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

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. The good news is that DICK'S Sporting Goods is growing revenues, and EBIT margins improved by 7.9 percentage points to 16%, over the last year. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
NYSE:DKS Earnings and Revenue History February 15th 2022

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future DICK'S Sporting Goods EPS 100% free.

Are DICK'S Sporting Goods Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

It's worth noting that there was some insider selling of DICK'S Sporting Goods shares last year, worth -US$2.8m. But that is far less than the large US$3.0m share acquisition by Executive Chairman Edward Stack.

The good news, alongside the insider buying, for DICK'S Sporting Goods bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enormous stake in the company, worth US$2.3b. That equates to 25% 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. That's because on our analysis the CEO, Lauren Hobart, is paid less than the median for similar sized companies. I discovered that the median total compensation for the CEOs of companies like DICK'S Sporting Goods with market caps between US$4.0b and US$12b is about US$6.5m.

DICK'S Sporting Goods offered total compensation worth US$4.8m to its CEO in the year to . 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.

Does DICK'S Sporting Goods Deserve A Spot On Your Watchlist?

DICK'S Sporting Goods's earnings per share have taken off like a rocket aimed right at the moon. The cherry on top is that insiders own a bunch of shares, and one has been buying more. 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. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for DICK'S Sporting Goods (1 is concerning) you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of DICK'S Sporting Goods, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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.

View the Free Analysis