Foolish Forecast: Batter Up at Dick's

Here's the windup . wait for it, wait for it .

And keep on waiting for it. We won't get the pitch, nor see Dick's Sporting Goods (NYSE: DKS  ) swing, for several more hours. Dick's reports its Q4 and full-year 2005 earnings tomorrow before the market opens. So while the pitcher's still winding up, let's look at where Dick's has been and where it might be swinging.

Wall Street Wisdom:

• General consensus. How appropriate: A full score of analysts follows Dick's Sporting Goods. Of these, 16 rate the stock a buy, and four more dub it a hold.
• Revenues. Analysts predict that Dick's will report a 9% increase in quarterly sales year over year, with revenues rising to $858.2 million.
• Earnings. Profits are expected to outpace that gain, rising 21% to $0.98 per share -- a number that lies in the middle of the company's own predicted earnings range of $0.95 to $1.00 per share.

Margin watch:
Dick's rolling net margins have been sinking over the past 18 months, and that's unlikely to change tomorrow. Although it's true that gross and operating margins have held pretty steady, serial restructuring charges taken in the October 2004-through-July 2005 quarters have put a serious drag on the company's bottom line. The quarter ending in April was the most expensive in this regard, however. So while tomorrow's results shouldn't show much improvement in the rolling net, the first quarter of 2006 should.

Margins %	7/04	10/04	1/05	4/05	7/05	10/05
Gross	28.3	27.8	27.8	27.7	27.6	27.8
Op.	6.1	5.6	6.2	6.1	6.2	6.2
Net	3.7	2.9	3.3	2.2	2.2	2.4

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish forensics:
I understand that Jim Cramer, among others, has been down on Dick's for a while. But I'm going out on a limb and saying Dick's doesn't look half bad here. True, the margins look flattish, and the return on invested capital has been declining over the past year. But consider the company's balance sheet. We saw sales grow 50% and 8% over the past two quarters, but inventories grew just 10% and 8% -- and these are not the results of a business that cannot move product.

Valuation metrics:
Mind you, that's my view of the business. I'm less enthusiastic about Dick's as a stock. The company trades at 34 times trailing earnings and has generated negative free cash flow over the past 12 months. Even if the business meets expectations of 20% long-term earnings growth, the price looks pretty rich to this Fool.

Competitors:
Dick's competes with Foot Locker (NYSE: FL  ) , Sports Authority (NYSE: TSA  ) , and the granddaddy of all things consumerish, Wal-Mart (NYSE: WMT  ) .

Fool contributorRich Smithdoes not own shares of any company named above.