For investors looking for chances in the market, a disciplined method often requires looking past well-known choices to find companies selling for less than their estimated true worth. One technique is to search for stocks that show good fundamental condition and earnings but are offered at a reduced price, indicating they might be priced too low. This approach fits with basic value investing ideas, where the aim is to buy good businesses when they are not liked by the wider market, offering a possible buffer. A recent search concentrating on reasonable value, earnings, condition, and increase has identified Academy Sports & Outdoors Inc (NASDAQ:ASO) as a possibility deserving more examination.
Valuation: An Interesting Starting Price
The most noticeable feature of Academy Sports & Outdoors is its price assessment, which receives a 7 out of 10 in ChartMill's basic analysis. This score is the base of the value argument, showing the stock is priced well compared to its financial results and future possibilities. For a value investor, a low price relative to profits and cash flow is the main screen, as it hints the market might be valuing the company below its actual value.
- Price-to-Earnings (P/E) Ratio: At 9.83, ASO's P/E ratio is much lower than both the S&P 500 average (27.32) and its industry group average in the Specialty Retail sector (34.90). It costs less than about 88% of its industry rivals.
- Forward P/E Ratio: The view stays interesting looking forward, with a forward P/E of 8.65, which is also below market and sector averages.
- Cash Flow and EBITDA Multiples: The company also seems fairly priced based on its cash production, with good Price-to-Free Cash Flow and Enterprise Value-to-EBITDA ratios compared to industry peers.
This group of measures creates a clear image: ASO is not a failing company trading at a low cost, but instead a profitable firm that the market is pricing cautiously. This lower price offers the possible "buffer" that value investors carefully look for.
Financial Condition and Earnings: A Firm Base
A low-cost stock is only a good opportunity if the basic business is stable. This is where the ideas of financial condition and earnings become very important. A value mistake often comes from buying a troubled company at a low price, only to see its basics weaken more. ASO's scores help reduce this danger.
The company gets a good Earnings score of 8/10. Main strong points include:
- Steadily positive profits and operating cash flow over the last five years.
- Good profit margins, with an Operating Margin of 8.26% and a Profit Margin of 6.27%, both doing better than most industry peers.
- Firm returns on capital, with a Return on Invested Capital (ROIC) of 9.26% that is higher than its cost of capital, showing it is producing real value for shareholders.
Its Financial Condition score is a 6/10, showing a mostly steady balance sheet with some parts to observe.
- The company keeps a good Debt-to-Equity ratio of 0.22 and a firm Current Ratio of 1.71.
- A point to note is a lower Quick Ratio (0.32), which indicates a dependence on inventory to cover short-term needs, a typical trait in retail but worth monitoring.
- On the positive side, the company has been decreasing its share count and lowering its debt-to-assets ratio over time, showing careful capital management.
For a value investor, this mix is attractive. The high earnings suggest efficient operations and pricing ability, while the acceptable condition score means the company is not carrying too much debt and can handle economic changes. This base supports the idea that the low valuation is not a signal of basic frailty.
Growth Path and Future View
While strict value investing sometimes includes companies that are not growing, adding a growth screen helps find businesses that might see their true worth rise over time. ASO's Growth score is 4/10, showing a varied but changing image.
- Past Results: The company has shown very firm historical EPS growth (33.32% on average), though it had a small drop in the latest year. Revenue growth has been slight but positive over the longer period.
- Future Predictions: Analysts forecast a return to growth, with estimates pointing to an average yearly EPS rise of 9.55% and revenue growth of 5.66% over the next few years. Importantly, the expected revenue growth rate is speeding up compared to the recent past.
This forward-looking growth, while not rapid, is significant. It suggests the company is not in a lasting slowdown but is set for steady enlargement. For a value investor, reasonable growth at a discounted price can be a strong mix, as it may lead to both price multiple improvement (the P/E ratio rising toward industry averages) and profit growth, a possible "twofold advantage" for the stock price.
Conclusion: A Possibility for the Value-Focused List
Academy Sports & Outdoors Inc presents an example of using a disciplined value screen. It satisfies the main requirements: an interesting valuation that offers a possible buffer, supported by good earnings and sufficient financial condition. The inclusion of a positive growth view sets it apart from a simple low-price investment and suggests the business has a path for future value building. While the retail sector deals with known cyclical and competitive tests, ASO's focus in sporting goods and outdoor activities, along with its mix of private labels and national brands, gives some strength.
Investors using a value plan may find ASO deserving of more study within a varied portfolio. The company's complete basic report, which lists all the measures behind these scores, can be seen here.
For those curious about finding other companies that pass similar screens for valuation, earnings, condition, and growth, you can examine the set "Decent Value Stocks" screen.
Disclaimer: This article is for information only and does not form financial guidance, a suggestion, or an offer to buy or sell any security. Investing includes risk, including the possible loss of initial funds. Readers should do their own study and talk with a qualified financial advisor before making any investment choices.
