Sporting goods retailers should have gone out of business years ago — just look at the likes of Sports Authority, Modell’s and Olympia Sports that have filed for bankruptcy in recent years.
but college sports (Aso -0.40%) Didn’t get the memo — it’s not only alive and well, but it’s beating the broader market in return.The sporting goods retailer is up nearly 40% over the past year, while Nasdaq Composite Index, where it was listed, is down about 24% in the same time frame. at the same time, Dow Jones Industrial Average and S&P 500 Index It’s down 4% and 13%, respectively, over that period, so it’s not just the tech-heavy Nasdaq that Academy Sports has outperformed.
And the recent performance isn’t an anomaly — Academy Sports has returned more than 300% since its 2020 IPO. Even after surging into 2022, Academy Sports still looks like a strong buy. That’s why.
What are college sports?
As the name suggests, Academy Sports is a sporting goods retailer. The Texas-based company has been in existence since 1938 and currently has 268 locations in 18 states, primarily in the southeastern United States. It sells sports equipment, apparel, footwear, and equipment for outdoor activities such as hunting, fishing, and camping.
The stores are spacious, averaging 70,000 square feet, giving Academy plenty of room to display a wide variety of merchandise. Academy stocks popular, premium brand names, and it also offers its own private labels such as Magellan, BCG and Freely at affordable prices.
From my point of view as an investor, companies need a “reason for being” – Academy’s mission statement is “Fun for All”, so it’s about making sports and the outdoors fun and accessible to all used by people. The company lives up to that value, offering items like $60 kids’ bikes and $4.99 private-label hats and T-shirts. Academy also differentiates by focusing on localized merchandising, such as crawfish cookers in Louisiana and smokers in Texas.
extension on deck
Academy Sports aims to expand further in the United States. The company is opening 10 new stores in 2022, making its first forays into states like Virginia and West Virginia. It aims to increase its store count by around 30% (80 to 100 new stores) by 2026.
The retailer plans to achieve this growth by “filling in” locations in markets where it already exists, expanding into adjacent markets, and entering entirely new geographic areas.
Academy says that if each new store represents a $20 million annual opportunity (which seems reasonable, based on the average number of units in its current stores), the expansion should generate up to $2 billion in additional annual revenue, which would be The company’s current annual revenue is $6 billion.
Why is Academy stock so cheap?
While Academy is an attractive growth stock, it’s also very much a value stock. Even after recovering in 2022, the stock still trades at less than 8 times earnings and only about 7 times forward earnings, well below the broader market. In fact, that’s about half the price of the broader S&P 500, which seems like a steal.
Academy Sports is also a buy from a price-to-earnings ratio (PEG) perspective. This metric calculates a stock’s earnings growth by dividing the P/E ratio by the earnings growth rate. Investors typically consider stocks with a PEG ratio below 1 to be undervalued, so Academy Sports looks great in this regard, with a PEG ratio of 0.7.
Academy’s P/E may be low because investors associate this market with a flood of bankrupt sports retailers, but as mentioned, Academy is different and has found a real “reason for being.”investors may worry amazon Will end up eating college lunch. But Academy’s long coexistence with Amazon hasn’t stopped the business from growing, so the sporting goods retailer deserves more credit from the market.
There may also be concerns that college grades have been boosted amid a surge in interest in the outdoors during the COVID pandemic. While this is certainly beneficial to the academy, many of these new outdoor participants may also find that they enjoy the new hobby they have developed during this time and will stick with it.
Even if some of them end up giving up on their new hobby, the total customer base should be higher than it was before the pandemic. While revenue in the most recent quarter was down about 6% year-over-year, it was still 30% higher than in 2019. Statista predicts that the global sports and outdoor market will grow at a compound annual growth rate of just over 10% through 2027, indicating that there is still plenty of room for future growth.
new dividend stock
Plus, Academy Sports is a dividend stock. While a 0.5% dividend yield might not seem like much to write home about, the company started paying a dividend in 2022, has the lowest payout ratio, and has plenty of room to grow over time.
Academy looks like an attractive combination of growth and value. The company has carved out an attractive niche for itself with its localization focus and the value it provides to customers. The company’s expansion plans offer a viable path to long-term revenue growth, and shares look incredibly cheap at less than 8 times earnings.
All of this means Academy Sports looks like a strong buy for investors to hold for the long term.