Dick’s Sporting Items Inc has the standard and worth traits of a Warren Buffett choose


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Warren Buffett, the world’s most legendary stock picker, once summed up his investment philosophy by saying, “Whether we’re talking socks or stocks, I like to buy quality stuff when it’s cheaper.”

In other words, buy great companies when they’re trading at fair or better prices.

Dick’s Sporting Goods Inc (NYQ:DKS) appears to meet some of Buffett’s criteria. The company, which is part of the Consumer Cyclicals industry group, has indications that it offers an attractive combination of quality and value.

In this article, we look at some of the key metrics that suggest Dick’s Sporting Goods Inc. is worth a closer look from Buffettologists.

Get data-driven insights into NYQ:DKS

The Power of Warren Buffett – Hagstrom Screen

In his bestselling book, The Warren Buffett Way, investment strategist Robert Hagstrom developed a stock-picking methodology that combines Buffett’s focus on value and company quality. The strategy used Price-to-Free Cash Flow as an evaluation standard and evaluates the quality operating result and return on equity.

In his book, Hagstrom stated, “Your goal as an investor should simply be to acquire, at a reasonable price, a fractional interest in an easy-to-understand company whose earnings will almost certainly be significantly higher five, ten, and twenty years from now.” Keep that in mind that Buffett is known for going beyond the financial yardstick when examining the quality of a franchise business.

How Does Dick’s Sporting Goods Inc Quality Score?

First, let’s examine whether Dick’s Sporting Goods Inc has quality characteristics as defined by the Hagstrom-Buffett criteria.

Promising, Dick’s Sporting Goods Inc return on equity exceeded 15% both in the last 12 months and in the previous year. Return on equity measures how much profit a company can generate from equity. If a company can sustain high returns on equity over time, it is often a good sign that the company enjoys a competitive advantage in its industry and its managers are skilled capital allocators.

For the most recent 12 month period, Dick’s Sporting Goods Inc return on equity was 72.0%.

As a second sign of quality, Dick’s Sporting Goods Inc has consistently generated one operating result in each of the last five years.

Besides, it is operating profit margin – up 16.5% over the trailing 12 months – is ahead of the median of its peers in the consumer discretionary industry group. The firms net profit margin of 12.4% was also above the median of its competitors.

Is Dick’s Sporting Goods Inc good value for money?

Next, let’s consider whether Dick’s Sporting Goods Inc represents value for money.

To gauge value, Hagstrom recommended looking for companies that generate high free cash flow relative to their stock price. After all, cash is king. As Buffett once said, “We have this fondness for things that make money.”

Dick’s Sporting Goods Inc has one Price Free Cash Flow Ratio of 6.58 as measured by trailing 12-month free cash flows. Compared to every other company on the market, Dick’s Sporting Goods Inc ranks in the top 30% most attractive stocks when it comes to this valuation ratio.

Buffett’s other key guide

All in all, Dick’s Sporting Goods Inc has marks of quality and value. But investors who want to heed Warren Buffett’s advice need to look beyond the numbers.

Warren Buffett emphasized that understanding a stock’s qualitative aspects — such as whether it has a sustainable moat — is just as important as evaluating quantitative criteria like the ones we’ve outlined in this article.

As Buffett once put it, “Buy a stock the way you would buy a house. Understand and like it in a way that you would be content to own if there was no market.”

Get inspired by the gurus

Many of the world’s most successful investors, like Benjamin Graham, Warren Buffett, and Joel Greenblatt, have shared their strategies fairly openly in letters, books, and interviews for decades. At Stockopedia, we have researched, codified and modeled these rules into a wide range of 67 ready-to-use “guru screens”. These screens hold literally hundreds of years of combined knowledge that you can use or duplicate with ease.

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