What: Shares of sporting goods retailer Dicks Sporting Goods Inc (DKS 1.96%) jumped 10.6% in January, according to S&P Capital IQ data, as investors bet that it would benefit from a competitor's troubles.
So what: It was a bad month for Dicks Sporting Goods competitor Sports Authority after Moody's downgraded the company's debt and said it may be less than a year from defaulting. The sporting goods retail business is under pressure from both online retailers and sporting goods manufacturers selling products directly to consumers. That pressure may be enough to take Sports Authority under, which would be a small benefit for Dicks Sporting Goods.
Now what: Sports Authority's troubles are just a sign of how rough the retail environment is in sporting goods, but I think Dick's is in a much better position. It has a larger footprint than Sports Authority, and a better consumer experience, which will keep drawing customers in who want to see products before they buy them.
With shares trading at 11.8 times forward earnings estimates and a competitor under financial duress, this is a good-looking value play. Just watch for signs that sales are falling because there may be more pressure from online sales than is being predicted right now, something we've already seen in the electronics retail space.