Is DICK’S Sporting Goods (DKS) a Suitable Value Investor Pick?

Value investing is one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that fly under the radar and make compelling purchases, or offer tempting discounts when compared to fair value?

– Zacks

One way to find these companies is to look at several key metrics and financial ratios, many of which are important in the stock value selection process. let’s put DICK’S Sporting Goods, Inc. DKS Put this equation together and see if it’s a good option for value-oriented investors right now, or if investors who subscribe to this methodology should look elsewhere for better choices:

PE . ratio

The key metric that investors always look at is the price-earnings ratio, or PE for short. This tells us how much investors are willing to pay for every dollar of earnings in a particular stock, easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the current PE ratio of the stock to: a) where this ratio has been in the past; b) How does it compare to the industry/sector average; and c) how it compares to the market as a whole.

On that front, DICK’S Sporting Goods has a twelve-month late-earnings ratio of 7.54, as you can see in the chart below:

Zacks Investment ResearchImage source: Zacks Investment Research

This level actually compares favorably with the market as a whole, with the PE of the S&P 500 standing at around 24.32. If we focus on the long-term trend of PE, the current PE level for sporting goods DICK places it below its midpoint over the past five years.

Zacks Investment ResearchImage source: Zacks Investment Research

Furthermore, PE per share compares favorably with Zacks’s twelve-month retail and wholesale trailing earnings ratio, which is 29.16. At the very least, this indicates that the stock is currently undervalued, compared to its peers.

Zacks Investment ResearchImage source: Zacks Investment Research

We should also point out that DICK’S Sporting Goods has a forward PE (price relative to this year’s earnings) of just 8.89, which is slightly higher than the current level. So it is fair to expect an increase in the company’s share price in the near term.

P/S . ratio

Another key metric to note is the price/sales ratio. This approach compares the price of a particular stock to its total sales, with a lower reading generally considered better. Some people like this metric more than others that focus on value because it looks at sales, which is more difficult to manipulate with accounting tricks than profits.

Currently, DICK’S Sporting Goods has a P/S ratio of about 1.03. That’s below the S&P 500 average, which comes in at 5.05 now. Also, as we can see in the chart below, this is the lows and highs for this particular stock over the past few years.

Zacks Investment ResearchImage source: Zacks Investment Research

If anything, the DKS is at the lower end of its range in the time period of the P/S scale, indicating a certain level of undervalued trading – at least by historical standards.

Value Overview

In aggregate, DICK’S Sporting Goods currently has a Zacks Value Score of A, placing it in the top 20% of all stocks we cover from this profile. This makes DICK’S Sporting Goods a solid choice for value investors.

What about stock in general?

Although DICK’S Sporting Goods may be a good option for value investors, there are plenty of other factors to consider before investing in this name. In particular, it’s worth noting that the company has a Growth Score of F and a Momentum Score of C. This gives DKS a Zacks VGM score – or its overall base score – of A. (You can read more about Zacks Style scores here >>)

Meanwhile, the company’s latest earnings estimates have been disappointing. The current year has seen five estimates rise over the past 60 days compared to three lower, while the full 2021 estimate has seen three upward revisions compared to a downward estimate in the same time period.

This had a negative impact on the consensus estimate even though the consensus estimate for the current year has fallen by 19.7% in the past two months, while the estimate for the whole of 2021 is down by 1.4%. You can see the consensus estimate trend and the stock’s recent price movement in the chart below:

Despite analysts’ bearish sentiment, the stock holds Zacks #3 (Hold) rank. Thus, we are looking for direct performance from the company in the near term.

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DICK’S Sporting Goods is an inspiring choice for value investors, whose impressive array of stats in the field is hard to beat. Our strong industry rank (among the top 26% of over 250 industries) increases our confidence.

However, Zacks Rank #3 makes it difficult to be too excited about this company in general. In fact, over the past two years, Zacks Retail – Miscellaneous has underperformed the overall market, as you can see below:

Zacks Investment ResearchImage source: Zacks Investment Research

Therefore, value investors may want to wait for industry trends with this name to change first, but once that happens, this stock may be a compelling choice.

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