ACADEMY SPORTS & OUTDOORS INC (NASDAQ:ASO) – A Hidden Gem for Value Investors with Strong Valuation and Financial Health

Value investing focuses on finding stocks priced below their true worth while showing good financial health, earnings, and growth prospects. A "Decent Value" screen picks companies with strong valuation scores (7 or above on ChartMill’s rating) and solid marks in earnings, financial health, and growth. This method follows Benjamin Graham’s idea of a "margin of safety," helping investors pay less than a stock’s estimated value while steering clear of weak or struggling businesses.

One example is ACADEMY SPORTS & OUTDOORS INC (NASDAQ:ASO), a Texas retailer focused on sporting goods and outdoor gear. The company’s financial report hints it might be priced lower than its financial strength and industry rivals suggest.

Valuation: A Good Deal

ASO’s valuation numbers are notable:

• P/E Ratio of 8.86: Much lower than the industry average (55.15) and the S&P 500 (27.25), signaling a low-cost entry.
• Forward P/E of 7.75: Confirming the stock’s discount compared to future earnings projections.
• Enterprise Value/EBITDA and Price/FCF: Both ratios rank ASO among the most affordable in its sector, beating 77–89% of peers.

For value investors, these figures imply the market might not fully recognize ASO’s earnings potential. The low price offers protection against losses, a key part of value investing.

Profitability: Steady and Solid

Despite its low price, ASO delivers strong earnings:

• Return on Equity (19.93%) and Return on Assets (7.49%) exceed 79% and 78% of peers, respectively.
• Operating Margin (8.54%) and Profit Margin (6.55%) rank in the top 20% of specialty retail.
• Five straight years of profits and positive cash flow highlight its stability.

High earnings at a low price is a sign of value opportunities, lowering the chance of lasting losses.

Financial Health: Mostly Sound

ASO’s balance sheet is generally strong:

• Low Debt/Equity (0.25): Below industry norms, with debt levels (e.g., Debt/FCF of 1.82) showing manageable payments.
• Share Reduction: The company has cut shares outstanding over five years, a good sign for shareholders.
  However, liquidity measures like the Quick Ratio (0.29) trail peers, meaning it depends on inventory sales. This isn’t a major issue but deserves attention.

Growth: Uneven but Hopeful

Growth is ASO’s weakest area, but not missing:

• Past EPS Growth (33.32% CAGR): Strong history, though recent EPS dropped 15.24% YoY.
• Future EPS Growth (8.68% expected): Likely to recover, with revenue growth rising to 6.21% yearly.

For value investors, modest growth is fine if the price is low enough to balance it. ASO’s valuation seems to account for short-term challenges while overlooking its long-term potential.

Why This Works for Value Investing

ASO fits the value investor’s goal: a financially stable, profitable business priced low due to temporary issues (like recent earnings dips). Its margins and returns suggest efficient operations, while its low valuation leaves room for gains if growth improves. The stock’s cheap multiples also offer a safety net, important for handling market swings.

For more stocks meeting similar criteria, check the Decent Value Stocks screener.

Disclaimer: This analysis is not investment advice. Always do your own research or consult a financial advisor before investing.