433%. That's the five year return on shares of Dick's Sporting Goods (DKS -0.42%). Once feared to be a victim of the retail apocalypse, Dick's Sporting Goods has delivered some pretty impressive returns to shareholders. Moving ahead in 2024, I'm a little bit less optimistic about the stock. Here's why.
The problem in the story
Despite Dick's Sporting Goods incredible run, there is one thing that stands out as a concern when looking for a continued bull case for this stock. The company's full-year estimates don't imply a lot of growth this year. For the 53-week fiscal year ended February 3rd, Dick's reported net sales of $12.98 billion. The sporting goods retailer's 2024 outlook is calling for $13.0 billion to $13.13 billion in net sales. Liberally, that's a little over 1% growth. In comparison, net sales increased by 5% last year.
Forecasts provided in the fourth quarter results gave an estimate of $12.85 to $13.25 in earnings per diluted share, while analyst estimates are looking for an average of $13.24 per share.
Conservatively, those estimates currently have the stock trading at around 15.32 times full-year earnings. Given the company's return to form, I don't think that's a ridiculous figure, but from a valuation perspective it doesn't seem to leave much room to run against its five-year average of 12.62 times earnings.
Growth isn't quite that compelling
I love the story Dick's has created over the last few years, bucking the trends of traditional retailers competing against the likes of Amazon (AMZN -1.45%). I'm rooting for that narrative to continue, but after seeing shares far outpace the S&P 500 (^GSPC -1.11%) over the last five years, this might be time for a pause and/or profit taking. Comp store sales projections are only calling for 1% to 2% this year, while the aforementioned revenue and earnings projections also seem a bit limited.
Image source: Getty Images
When you really look at it, all the strength that has driven the stock most recently has stemmed from the holiday quarter, where net sales grew 7.8% year over year, and net income increased 26% year over year.
For the full year (on a 53-week basis) net income came in at $1.046 billion. Compare that to the $1.043 billion in net income for the 52 weeks ended January 2023, and things don't seem as exciting.
Most of the gains for shareholders on a diluted share basis actually stem from a declining share count. Weighted common shares declined to almost 86 million diluted shares compared to 99.27 million the year prior. This allowed the relatively stagnant year-over-year net income to translate to higher diluted earnings per common share.
Waiting for an opportune moment
These notes are not to say that the growth story for Dick's Sporting Goods is over. Far from it. I simply feel that the momentum may not be there this year to continue the stock gains we've seen. I'm an avid fan of the stores, and frequent them often. The company also has a great e-commerce business; but 1% net sales growth does not seem like enough to induce another 87% run like the stock has had over the last six months.
Those that want to stay in this ride need to be aware that current guidance doesn't exactly create a big bullish story for the stock this year. I would go so far as to argue that the provided guidance may lead to the stock's decline, and provide better buy-in points for long-term-minded investors.
