It's getting tough slogging through small cap after small cap in search of one that's really swinging for the fences, a true contender for Motley Fool Hidden Gems. But if they were easy to find, they wouldn't be . oh, never mind. You get it. Today's candidate is Dick's Sporting Goods (NYSE: DKS ) .
I won't bore you with what the company sells -- you already know that. Suffice it to say that Dick's has 234 outlets and a 57-year pedigree. Both the Baron Growth Fund and the respected Brandywine Fund hold the company for their shareholders. Competition? Oh, my, yes. Shall we start with Foot Locker (NYSE: FL ) and Nike (NYSE: NKE ) or just move straight on to Wal-Mart (NYSE: WMT ) ? How in the world can a little guy have a sporting chance with competition like this? Well, the company seems to have gained a firm foothold, as this article from fellow Fool Seth Jayson suggests.
The recent stock price of about $39 prices it at a current P/E of 21, based on current-year analyst earnings of $1.85 per share. That gives the company a forward P/E of 18 based on 2006 estimated earnings of $2.10. So Dick's is looking at about 14% earnings growth and, therefore, a premium current PEG of 1.5. It already looks expensive. But that doesn't always mean it can't qualify for Hidden Gems using my own set of criteria, so let's check:
- Market cap of less than $2.5 billion? Yes -- $1.92 million.
- Historical and projected earnings growth of 15%? Yes -- 29.2% over the past five years, 12% next year, and 20% over the coming five years, according to analyst estimates. But it's worth noting that growth is slowing, not increasing.
- Free cash flow positive? Yes -- $99.2 million on a trailing-12-month basis.
- MC/FCF less than P/E? Yup -- right around 19.
- MC/FCF/five-year growth ratio of less than 0.66? No -- 0.95.
- Debt 20% of equity and reasonable? No -- 96%.
- Net profit margins greater than 7%? No -- 2.2% on a trailing-12-month basis.
- Insider ownership of 20%-50%? Oh, yes -- 25%.
The company is doing something right, though. I'd encourage you to read the articles below and suss out how it's faring against the competitors. But as for our hunt, well . reload the gun.
For more on Dick and his goods, read:
- A debate over whether the company has a slam-dunk stock.
- A bullish opinion on this good sport of a company.
- A look at how competitor Gander Mountain is doing.
Fool contributor Lawrence Meyers owns no stocks in this article but is searching for one to buy. Don't listen to him, though. Do your own research.