DICK'S SPORTING GOODS INC (NYSE:DKS): A GARP Stock With Affordable Growth and Solid Profitability

Investors looking to balance the search for growth with a degree of caution often consider strategies like Growth at a Reasonable Price (GARP). This method tries to find companies that are increasing their earnings and revenues at a good rate, but whose shares are not trading at very high prices. It is a middle path between pure, high-momentum growth investing and deep-value searching, concentrating on lasting business growth that the market may not have completely recognized. One method for finding these possibilities is the "Affordable Growth" stock screen, which looks for companies with good growth scores, firm profitability and financial condition, and a price that does not cause immediate concern.

A recent result from this screen is DICK'S SPORTING GOODS INC (NYSE:DKS), a major national seller of sporting goods. The company's fundamental picture, as shown in its detailed analysis report, makes a good case for review under the affordable growth idea. The total fundamental score of 6 out of 10, while not high, shows a combination of clear positives and certain points for attention that are typical of a GARP prospect.

Growth: The Main Factor

The main attraction for a growth-oriented plan is DICK'S Sporting Goods' shown and expected business increase. The company gets a Growth score of 7, supported by strong past results and good future estimates.

• Past Performance: Over the last few years, the company has posted notable growth numbers. Revenue has risen at an average yearly pace of almost 9%, while Earnings Per Share (EPS) has climbed at an average rate above 30%. In the latest year, revenue went up by 10.86% and EPS increased by 8.67%.
• Future Estimates: Analysts expect this trend to persist. Revenue is estimated to grow at an average yearly rate above 12.5% in the next few years, pointing to a faster pace than the past trend. EPS growth is also expected to stay positive at above 8% per year.

This steady and predicted growth is central to the GARP plan, as it finds a company that is steadily making its business and profits larger, giving a basic reason for the stock to gain value over time.

Valuation: The "Reasonable Price" Test

A central idea of affordable growth investing is making sure the growth potential is not already counted in a very expensive stock price. DICK'S Sporting Goods gets a 5 on Valuation, indicating its shares are priced in an area that gives a fair starting point compared to its future.

• Good Multiples: The stock's Price-to-Earnings (P/E) ratio of 16.09 is seen as fair on its own. More significantly, it is less expensive than about 77% of similar companies in the Specialty Retail industry, where the average P/E is much higher at 27.2.
• Market View: This price also looks good compared to the wider market. DKS trades below the current S&P 500 average P/E of 26.4. Its forward P/E ratio of 15.1 is also much lower than the S&P 500's forward average.
• Growth Consideration: The analysis states that the company's very good profitability could support a higher P/E ratio, meaning the current multiple may not fully reflect the quality of its earnings.

This price background is important. It suggests investors are not paying extra for past results, but may have a chance to invest in an expanding company before the market completely sees its possibility, fitting well with the GARP thinking.

Profitability and Financial Condition: The Supporting Base

For growth to be lasting and the fair price to be valid, a company must be profitable and financially stable. DICK'S Sporting Goods displays a clear positive in profitability, with a high score of 8, but shows a more varied situation on financial condition, which scores a 5.

• Firm Profitability: The company is very good at turning sales into earnings. Its Profit Margin of 6.86% and Operating Margin of 9.71% are in the higher range of its industry, doing better than over 80% of peers. Returns on Assets, Equity, and Invested Capital are all above industry averages, showing effective use of capital.
• Sufficient but Watched Condition: The Financial Condition score of 5 highlights areas that need investor notice. Good points include an acceptable Debt-to-Equity ratio of 0.35 and a better debt-to-assets ratio. However, a low Quick Ratio of 0.37 points to a dependence on inventory to cover short-term needs, and a high Debt-to-Free-Cash-Flow ratio shows it would take several years to clear debt from current cash flow. While the Altman-Z score indicates little near-term bankruptcy danger, it puts the company in a careful "grey zone."

For an affordable growth plan, these condition numbers are not reasons to avoid it but are important to watch. They explain why the screen looks for "acceptable" condition rather than excellent—it accepts that companies growing quickly often use their balance sheets to support expansion, but checks that the position is not unstable.

Conclusion

DICK'S SPORTING GOODS INC displays a picture that matches the goals of an affordable growth investor. It presents a firm and quickening revenue growth path together with solid past earnings increase. Importantly, this growth is offered at a price that is fair both within its retail sector and compared to the wider market. The company's very good profitability gives a buffer and pays for its growth plans, though its financial condition numbers justify continued observation to make sure the growth stays lasting.

For investors wanting to see other companies that fit similar standards of acceptable growth, acceptable fundamentals, and fair prices, more outcomes from the "Affordable Growth" screen are available here.

Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer or request to buy or sell any securities. The information shown is based on supplied data and should not be the only source for any investment choice. Investing has risk, including the possible loss of the original amount invested. Always do your own research and talk with a qualified financial advisor before making any investment decisions.