Dick's: Big Hitter or Strikeout?

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:

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.


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