The Best Retail Plays in This Sector

The recent mini-crash at lululemon athletica had some investors looking nervously at other companies that make their money from Americans' interest in sports and fitness. But the contortions of one merchant of yoga pants shouldn't put investors off sports-related retailers.

Sporting goods stores have momentum on their side. The May sales figures just released by the U.S. Commerce Department show sporting goods and hobby store sales are up 7% year-to-date over the same time last year. And the first-quarter results posted by Dick's Sporting Goods (NYSE: DKS  ) -- earnings up 52% -- underline that consumers are back spending on discretionary items like tennis rackets and golf clubs. Even lululemon's sour patch came from inflated expectations, as Fool Evan Niu pointed out here.

Dick's is the biggest player in the segment, with stores nationwide and a growing presence online, but it's hard to bet on the favorite right now. Dick's is trading at a P/E around 21, which is off the average of 29 for retail stores, but far richer than its competitors. And the stock price is too close for comfort to its 52-week high. As Fool Rich Smith pointed out recently, the upside is limited.

Cabela's (NYSE: CAB  ) also posted a healthy first quarter, but looks to have a bit more upside potential. It's trading at a P/E around 16 and is still way off its consensus target price of $44 per share.

Marketwatch reported recently that Reuben Mark, the former CEO of Colgate, who's a Cabela's director, has been buying up stock in the company -- 80,000 shares in May -- and the stock price has gone up all five times he's bought stock. Mark is in good company: Cabela's gets a four-star CAPS rating among Fools and has gone up about 52% in the last year.

The other, smaller players in the sporting goods sector are still in the game for now, but there's room for only a couple of big-box players in any given retail segment and this one is getting crowded. Between Dick's, Cabela's, Sports Authority (privately owned by Leonard Green) and the rising REI (the crunchy Oregon co-op that's expanding into new markets out East) the smaller players risk getting squeezed out.

Hibbett Sports (Nasdaq: HIBB  ) looks like the one with the most potential and has already been discovered on this site. Thanks to its good results, Hibbett has blown past its consensus price target of $56.50. There's too much seasonality to sporting goods, as Fool Seth Jayson pointed out; it's best not to gamble on Hibbett moving the needle further.

Another player in the market, Big 5 Sporting Goods (Nasdaq: BGFV  ) , has been left out of all this good news. In its latest quarterly report, same-store sales were down 2.9% and merchandise margins were down 156 basis points. The company blamed both on lower sales of winter sports equipment because of unusually warm weather in the West, where most of its stores are located. Management also guided lower for the second quarter, to expect earnings of $0.05-$0.11 per share, compared to $0.14 last year. But on the plus side, management said it would pay its regular dividend of 7.5 cents per share in June and will continue its share repurchase program. Even though its P/E is only 15 and it's way off its 52-week high, it's better to throw this one back.

Want to sit this one out and get in the game later? Follow these sporting goods retailers on your free My Watchlist.

 Mercedes Cardona does not own shares in any of the companies mentioned in this article. Follow her on Twitter and on her website.

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