Dicks vs. Academy Sports & Outdoors: Which Sporting Good Stock is a Better Investment?

DICK'S Sporting Goods, Inc. (DKS) operates as a sporting goods retailer primarily in the eastern United States. It provides hardlines, including sporting goods equipment, fitness equipment, golf equipment, and other accessories. Academy Sports and Outdoors, Inc. (ASO) also operates as a sporting goods and outdoor recreational products retailer in the United States.

With rapid vaccination rollouts and the subsequent easing of social distancing mandates, outdoor activities are gaining traction. The U.S. outdoor and sports industry is witnessing a significant increase in sales this year. According to The NPD Group, equipment sales at sports specialty retail grew by 23% in the first half of 2021, compared to the same period before the pandemic in 2019. This was mainly driven by a 17% gain in brick-and-mortar retail sales and a 31% rise in e-commerce sales. The industry is expected to grow in upcoming months, with significant progress on the vaccination front. Thus, sporting goods stocks DKS and ASO could generate substantial revenues in the near term.

ASO has gained 73.5% over the past six months, while DKS has returned 67.4% over this period. However, DKS’ 132.7% gain year-to-date compares with ASO’s 106.3% return. In terms of the past nine month’s performance, DKS is the clear winner with a 135.3% gain versus ASO’s 112.3%.

But which stock is a better buy now? Let’s find out.

Latest Developments

Earlier this month, DKS announced that it would expand its nationwide footprint with the grand opening of its first Public Lands store in Pittsburgh, PA, on September 24. This store demonstrates a new outdoor-focused specialty concept that should attract more customers and expand the company’s market reach significantly.

On August 16, Whataburger and ASO announced their collaboration to launch an exclusive line worthy of a Texas-sized summer celebration: the first-ever Outdoors x Whataburger co-branded apparel collection. Both the companies are expected to benefit from this iconic collaboration.

Recent Financial Results

DKS’ net sales increased 20.7% year-over-year to $3.27 billion in the fiscal second quarter that ended July 31. Income from operations came in at $663.55 million, reflecting an increase of 69.6% from the same period last year. Net income grew 79% from the year-ago value to $495.51 million. The company’s EPS increased 45.2% year-over-year to $4.53.

ASO’s net sales increased 11.5% year-over-year to an all-time quarterly high of $1.79 billion in the fiscal second quarter that ended July 31. Its operating income grew 38.5% from its year-ago value to $254.56 million, while its net income improved 13.6% year-over-year to $190.51 million. The company’s adjusted EPS improved 29.3% year-over-year to $2.34.

Expected Financial Performance

Analysts expect DKS’ revenue to increase 22.2% in the current year, while the company’s EPS is expected to grow 109%. Moreover, its EPS is expected to grow 16.4% per annum over the next five years.

The Street expects ASO’s revenue to increase 16.9% in the current quarter and 15% in the current year. The company’s EPS is expected to grow 15.4% in the current quarter and 61.1% in the current year. Moreover, ASO’s EPS is expected to grow 11% per annum over the next five years.

Profitability

DKS is more profitable with a gross profit margin and EBITDA margin of 36.65% and 17.96%, compared to ASO’s 33.96% and 13.19%, respectively.

Furthermore, DKS’ ROE, ROA, and ROTC of 50.82%, 14.40%, and 19.86% compare with ASO’s 40.01%, 9.64%, and 12.74%, respectively.

Thus, DKS is more profitable here.

Valuation              

In terms of forward EV/Sales, DKS is currently trading at 1.06x, 27.4% higher than ASO, which is currently trading at 0.77x. However, ASO’s trailing-12-months EV/EBITDA ratio of 6.09 is 2.8% higher than DKS’ 5.92.

POWR Ratings

Both the stocks have an overall grade of B, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Both stocks also have a Momentum grade of A. This is justified as the stocks are currently trading above their 50-Day and 200-Day moving averages.

DKS has a grade of A for Quality, while ASO has a grade of B for Quality. DKS’ net income margin of 10.69% is 70% higher than the industry average of 6.29%. On the other hand, ASO’s grade is justified as its net income margin of 8.22% is 30.8% higher than the industry average.

Of the 36 stocks in the A-rated Athletics & Recreation industry, ASO is ranked #7, while DKS is ranked #20.

Beyond what we’ve stated above, we have also graded the stocks for Stability, Sentiment, Value, and Growth. Click here to view DKS ratings. Also, get all ASO ratings here.

The Winner

The outdoor sports industry returns to pre-pandemic levels, backed by a strong vaccination drive and pent-up demand. Both DKS and ASO are fundamentally strong with stable financials. Thus, both the stocks could be suitable investments now. However, higher profitability and better growth prospects make DKS a better buy here.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Athletics & Recreation industry here.

DKS shares were trading at $129.18 per share on Tuesday afternoon, down $1.64 (-1.25%). Year-to-date, DKS has gained 142.45%, versus a 17.47% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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