ACADEMY SPORTS & OUTDOORS INC (NASDAQ:ASO) Presents a Compelling Case for Value Investors

Value investors look for companies trading below their intrinsic worth, and filtering for stocks with good fundamental valuation scores while having acceptable health, profitability, and growth can point to such opportunities. This method fits with the central value investing idea of buying dollar bills for fifty cents, concentrating on financially stable businesses that the market has currently priced too low. A stock that meets this screen's criteria indicates it is not only inexpensive, but inexpensive without a valid cause connected to its main business condition.

ACADEMY SPORTS & OUTDOORS INC (NASDAQ:ASO) functions as a large sporting goods and outdoor recreation retailer, having a wide product selection from national brands such as Nike and Under Armour to its own group of private labels. The company's fundamental picture, as described in its detailed analysis report, shows why it is notable for investors using this approach.

Attractive Valuation Metrics

The most noticeable aspect of Academy Sports is its very appealing valuation, which is the main filter in a value-focused screen. The stock seems notably priced low compared to both its industry and the wider market.

• Price-to-Earnings (P/E) Ratio: ASO's P/E ratio of 8.01 is much lower than the industry average of 25.92 and the S&P 500 average of 25.65, showing it is less expensive than over 90% of its specialty retail counterparts.
• Forward P/E Ratio: The forward P/E of 6.98 gives more support to the low valuation, being less than almost 93% of industry rivals.
• Enterprise Value to EBITDA: This ratio also points to a bargain, with ASO being valued at a lower level than 83% of the industry.
• Price-to-Free-Cash-Flow: The company's valuation from free cash flow is good, with most of its industry competitors having higher valuations.

For a value investor, these metrics are important as they give a numerical foundation for thinking the market price is less than the company's intrinsic value, establishing a possible safety buffer.

Good Profitability Profile

An inexpensive stock is only a worthwhile opportunity if the company is fundamentally profitable. Academy Sports does well here, having a Profitability Rating of 8 out of 10. This quality confirms the low valuation is not a sign of a poor business but possibly a market mistake.

• Return Metrics: The company shows efficient use of capital with a Return on Equity (ROE) of 17.87% and a Return on Invested Capital (ROIC) of 9.36%, both doing better than a large portion of their industry peers.
• Acceptable Margins: ASO keeps a solid Profit Margin of 6.21% and an Operating Margin of 8.17%, which have displayed positive improvement patterns in recent years.

This steady profitability is a central idea for value investors such as Warren Buffett, who prefer companies with a established history of producing earnings, as it helps the estimation of a dependable intrinsic value and lowers investment risk.

Acceptable Financial Health

Value investing needs a company to be financially sound enough to survive economic slowdowns and steer clear of the feared "value trap." Academy Sports gets an acceptable Health Rating of 6, pointing to a mostly stable balance sheet.

• Controlled Debt: The company displays a good Debt-to-Equity ratio of 0.23 and a strong Debt-to-Free-Cash-Flow ratio of 2.03, indicating it can settle its debts fairly fast.
• Share Reduction: Management has been lowering the number of shares outstanding, which is an action that benefits shareholders and can raise the value of each remaining share.
• Liquidity Note: A small area of notice is a low Quick Ratio of 0.33, which shows a possible difficulty in meeting immediate liabilities without selling inventory. Still, this is partly balanced by a good Current Ratio of 1.64.

This general financial health gives assurance that the company is not in a weak position, making its low valuation more probable to be short-term.

Moderate Growth Outlook

While pure value stocks can lack growth, this screen intentionally looks for "acceptable" growth to bypass stagnant companies. ASO's Growth Rating of 4 shows a varied but satisfactory situation.

• Good Historical EPS Growth: Over a several-year span, the company has recorded a notable average yearly Earnings Per Share (EPS) growth of 33.32%.
• Recent Challenges: The past year displayed a drop in both EPS and Revenue, which could partially account for the market's negative valuation.
• Positive Future Predictions: Analysts anticipate a recovery, with EPS projected to increase by 9.55% per year and Revenue by 5.66% in the next few years.

For a value investor, this moderate growth outlook is enough. It implies the business is not in a long-term downturn and offers a reason for the market to eventually reprice the stock upward as growth returns.

Academy Sports & Outdoors offers a strong case for value-focused investors. It joins a very low stock price with good basic profitability and acceptable financial health, all while indicating potential for future growth. This mix fits the objective of locating good businesses that are currently unpopular.

This review of ASO was found using a fundamental filtering method. If you want to find other companies that match a similar model of good valuation and acceptable fundamentals, you can check the Decent Value Stocks screen on ChartMill for more possible ideas.

,

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. All investing involves risk, including the possible loss of principal. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions.