Dick’s Sporting Items Inventory Exhibits Each Signal Of Being Considerably Overvalued

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– According to GF value

Dick’s Sporting Goods (NYSE: DKS, 30-year financial data) gives every indication that it is significantly overvalued, according to the GuruFocus Value calculation. The GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should be traded. The calculation is based on the historical multiples at which the share traded, past business growth and analyst estimates of future business development. If a stock’s price is well above the GF value line, it is overvalued and its future return is likely to be poor. On the other hand, the future return is likely to be higher if it is well below the GF value line. With a current price of $ 76.15 per share and a market cap of $ 6.8 billion, Dick’s sporting goods are believed to be significantly overvalued. The GF value for Dick’s sporting goods is shown in the table below.

Dick’s sporting goods inventory shows every sign of significant overvaluation

With Dick’s sporting goods being significantly overvalued, the long-term return on his stocks is likely to be much lower than future business growth, which averaged 9% over the past three years and is expected to grow 0.80% annually for the next three 5 years.

Link: These companies may deliver higher future returns with reduced risk.

Companies with little financial strength present investors with a high risk of permanent capital loss. To avoid permanent loss of capital, an investor must do their research and verify a company’s financial strength before making a decision to buy shares. Both a company’s cash-to-debt ratio and interest coverage are great ways to understand its financial strength. Dick’s Sporting Goods has a cash-to-debt ratio of 0.53, which is in the middle of the range for companies in the Retail – Cyclical industry. The overall financial strength of Dick’s Sporting Goods is 6 out of 10, which indicates that Dick’s Sporting Goods financial strength is fair. This is the debt and money that Dick’s Sporting Goods has made over the past several years:

The story goes on

Dick’s sporting goods inventory shows every sign of significant overvaluation

Investing in profitable companies is associated with lower risk, especially in companies that have consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Dick’s Sporting Goods has been profitable for 10 years over the past 10 years. For the past 12 months, the company had sales of $ 9.6 billion and earnings of $ 5.46 per share. Its operating margin of 7.74% better than 76% of companies in the Retail Industry – Cyclical. Overall, GuruFocus rates Dick’s Sporting Goods’ profitability as strong. This is the sales and net income of Dick’s Sporting Goods over the past few years:

Dick's sporting goods inventory shows every sign of significant overvaluation

Dick’s sporting goods inventory shows every sign of significant overvaluation

Growth is probably one of the most important factors in evaluating a company. Research by GuruFocus has shown that growth is closely related to the long-term performance of a company’s stocks. When a company’s business is growing, the company usually creates value for its shareholders, especially when the growth is profitable. When a company’s sales and earnings decrease, so does the company’s value. Dick’s Sporting Goods average 3 year sales growth rate is over 74% of companies in the retail industry – Cyclical. Dick’s Sporting Goods’ average 3-year EBITDA growth rate is 18.8%, exceeding 70% of companies in the retail industry – cyclical.

Another way to evaluate a company’s profitability is to compare its return on investment (ROIC) to its weighted cost of capital (WACC). Return on Invested Capital (ROIC) measures how well a company generates cash flow in relation to the capital it has invested in its business. The weighted average cost of capital (WACC) is the average rate that a company is expected to pay to all securityholders to fund its assets. When the ROIC is higher than the WACC, it means the company is creating value for shareholders. For the past 12 months, Dick’s Sporting Goods ROIC was 11.24 while WACC was 8.82. The historical comparison of ROIC and WACC from Dick’s Sporting Goods is shown below:

Dick's sporting goods inventory shows every sign of significant overvaluation

Dick’s sporting goods inventory shows every sign of significant overvaluation

Overall, Dick’s Sporting Goods (NYSE: DKS, 30-year financials) is showing all signs of significant overvaluation. The company’s financial position is fair and profitability is high. The growth is over 70% of companies in the retail industry – Cyclical. To find out more about Dick’s sporting goods, check out the 30 year financials here.

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This article first appeared on GuruFocus.

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