Stock Analysis
DICK'S Sporting Goods' (NYSE:DKS) stock up by 9.3% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to DICK'S Sporting Goods' ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Check out our latest analysis for DICK'S Sporting Goods
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for DICK'S Sporting Goods is:
49% = US$1.2b ÷ US$2.4b (Based on the trailing twelve months to October 2022).
The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.49 in profit.
So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
To begin with, DICK'S Sporting Goods has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 29% which is quite remarkable. As a result, DICK'S Sporting Goods' exceptional 39% net income growth seen over the past five years, doesn't come as a surprise.
As a next step, we compared DICK'S Sporting Goods' net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 34% in the same period.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for DKS? You can find out in our latest intrinsic value infographic research report.
DICK'S Sporting Goods has a really low three-year median payout ratio of 13%, meaning that it has the remaining 87% left over to reinvest into its business. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.
Besides, DICK'S Sporting Goods has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 20% over the next three years. Therefore, the expected rise in the payout ratio explains why the company's ROE is expected to decline to 37% over the same period.
On the whole, we feel that DICK'S Sporting Goods' performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.
What are the risks and opportunities for DICK'S Sporting Goods?
NYSE:DKS
DICK'S Sporting Goods
DICK'S Sporting Goods, Inc., together with its subsidiaries, operates as a sporting goods retailer primarily in the eastern United States.
Rewards
Trading at 18.7% below our estimate of its fair value
Risks
High level of non-cash earnings
Significant insider selling over the past 3 months
Share Price
Market Cap
1Y Return
Further research on
DICK'S Sporting Goods
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
DICK'S Sporting Goods, Inc., together with its subsidiaries, operates as a sporting goods retailer primarily in the eastern United States.
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Excellent balance sheet established dividend payer.
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