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As Sports Authority Liquidates, Buy Dick's Sporting Goods (DKS)

Two months ago, Sports Authority announced plans to close 140 stores.  Now, the company has decided that it may end up liquidating all 450 of its stores.  An auction will be held on May 16 for Sports Authority’s assets.  Originally, the company was going to file for bankruptcy and reorganize its debt.   Plans have changed, and the company now wants to sell off its assets in the hopes that it can pay off its debt.  According to Forbes, Sports Authority has debts amounting to over $1 billion. 

Sports Authority is selling its inventory on the cheap and the company will probably increase its usage of discounts, so competitors like Dick’s Sporting Goods DKS may see sales contract over the short term.  After that, and once Sports Authority is no longer in the sports retail picture, it’s open season on the billions of dollars of sales that Sports Authority will no longer be racking up.

Dick’s Sporting Goods is a great stock pick right now.  The company’s shares are up 3.5% in trading today, but investors stand to earn larger returns with this stock over time, especially since Dick’s stands to absorb a good chunk of the sales left behind by Sports Authority.

The company looks attractive across numerous financial metrics.  For one, the stock is not inflated at all right now.  DKS trades at a forward PE of 15.67, and it has a PEG of 1.27.  The corporation’s stock also trades at a price-to-sales of just 0.68.  A price-to-sales under one suggests that a stock may be undervalued.  It’s no wonder why Dick’s Sporting Goods gets a grade of “A” for Value in our Style Scores. 

Dick’s has a current ratio of 1.52, and debt-to-capital of just 0.3%.  The company is liquid, and it may be a candidate that participates in Sports Authority’s auction in mid-May.  DKS has beaten our EPS consensus estimate in two of the last four quarters, and it has a Zacks Rank #3 (Hold).  The company expects to see increased sales growth as Sports Authority fades out of the market.

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