ACADEMY SPORTS & OUTDOORS INC (NASDAQ:ASO) Passes "Decent Value" Screen

Using a "Decent Value" screening method, investors can find companies that seem to be trading below their intrinsic worth while still having sound underlying business fundamentals. This approach looks for stocks with good valuation ratings, meaning they may be priced low relative to their earnings or assets, but also requires acceptable scores in profitability, financial health, and growth. The aim is to avoid so-called "value traps", stocks that are cheap for a reason, by confirming the company is fundamentally healthy and able to grow in the future. One stock that recently passed this screen is Academy Sports & Outdoors Inc (NASDAQ:ASO).

Valuation Metrics

A foundation of value investing is buying assets for less than their intrinsic value, and Academy Sports & Outdoors makes a good case based on key valuation multiples. The stock's current numbers suggest it is priced conservatively by the market.

• Price-to-Earnings (P/E) Ratio: ASO's P/E ratio of 8.20 is much lower than the industry average of about 43.48, meaning it is valued lower than over 93% of its specialty retail peers. It also stands in sharp contrast to the S&P 500's average P/E of 27.41.
• Forward P/E Ratio: Looking forward, the valuation stays appealing with a forward P/E of 7.06, which is lower than 94% of the industry and the broader market.
• Other Multiples: The company also seems undervalued when looking at other numbers like Enterprise Value to EBITDA and Price to Free Cash Flow, doing better than over 80% of its industry competitors.

These numbers are important for value investors because a low P/E ratio can signal that the market is undervaluing the company's earnings power, offering a potential margin of safety, a key idea in value investing started by Benjamin Graham.

Profitability Strength

While a low price is essential, it must be combined with a profitable company. A high profitability score helps verify that the low valuation is not a sign of a broken business model. Academy Sports & Outdoors does well in this area, scoring an 8 out of 10.

The company shows good profitability through solid margins and returns on capital. Its Profit Margin of 6.21% and Operating Margin of 8.17% are some of the best in the industry, doing better than about 80% of competitors. Also, key efficiency numbers like Return on Equity (17.87%) and Return on Invested Capital (9.36%) are firmly above the industry median. For a value investor, this steady profitability indicates a durable competitive advantage and a business that is using its capital effectively to create returns for shareholders.

Financial Health Assessment

Financial health is a protection against the risks present in any investment. A company with a solid balance sheet is in a better position to handle economic downturns and put money into future opportunities. ASO gets a moderate but acceptable Health rating of 5 out of 10.

The analysis shows a mixed situation. On the good side, the company has a manageable Debt-to-Equity ratio of 0.23, showing low use of debt financing, and it has been lowering its share count, a signal of shareholder-friendly capital allocation. However, a lower Quick Ratio indicates some possible short-term liquidity issues that need watching. In general, the solvency of the company is not a major worry, which is a required condition for value investors who focus on the preservation of capital.

Growth Prospects

Finally, even a deep-value investment needs some growth potential to drive a re-rating of the stock price. ASO's Growth rating of 4 out of 10 is the lowest of the group but still shows encouraging signs. While recent earnings and revenue have seen a small decrease, the long-term view is more positive. The company has a good history of Earnings Per Share (EPS) growth, averaging 33.32% each year over the past several years.

More significantly, future expectations are more optimistic, with analysts predicting EPS growth of almost 9% and revenue growth of over 6% in the coming years. For a value investor, this predicted pickup in revenue growth is a good sign that the company's current difficulties may be short-term, and its intrinsic value could be set to rise.

Conclusion

Academy Sports & Outdoors Inc presents a profile that fits with the ideas of value investing. It trades at a large discount to both its industry and the broader market, as shown by its high Valuation rating. This possible undervaluation is supported by very good profitability and a fairly healthy balance sheet, lowering the risk of a value trap. While recent growth has been slow, predictions for a recovery exist. The mix of a low entry price and solid fundamental qualities makes ASO a stock worth more examination for investors using a value-focused strategy. A detailed breakdown of the fundamental analysis is available in the full fundamental report.

This analysis of ASO was created from a predefined screen. Investors interested in finding other companies that meet similar "Decent Value" criteria can look at the screen for more results.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. All investments involve risk, including the possible loss of capital. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.