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Why Dick's Sporting Goods' Shares Popped 14% in August

By Travis Hoium – Sep 11, 2016 at 12:22PM

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Stronger-than-expected earnings helped Dick's Sporting Goods last month, but there could be questions ahead.

Image source: Getty Images.

What happened

Shares of Dick's Sporting Goods (DKS -2.23%) rose 14.3% in August, according to data provided by S&P Global Market Intelligence, in large part because the company posted strong second-quarter earnings.

So what

Sales rose 7.9% in the quarter to $2.0 billion on a 2.8% rise in same-store sales. This crushed management's guidance of a 1% to 4% decline in same-store sales. Management also said that full-year earnings would be $2.90 to $3.05 per share, up from a previous outlook of $2.60 to $2.90. 

The bankruptcies of numerous competitors has helped Dick's Sporting Goods consolidate power atop the sporting goods world. And the company has managed to keep competition from online retailers at bay, partly because sporting goods are items customers want to try on first.

Now what

Dick's Sporting Goods is the last company standing in the world of sporting goods and that's why it's been able to perform well in 2016. That may be a good title for now, but it also doesn't say much about the health of the industry or justify investors paying a high price for shares. And the concern right now should be that shares are overvalued at 19 times the high end of 2016 earnings guidance. That's a steep price for a retailer in an industry where companies are going bankrupt.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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