TRADE INSTRUCTIONS
Date: October 12, 2017
Name: Dick’s Sporting Goods
Symbol: DKS (NYSE)
Type: Open
Limit: Buy below $26

TRADE TARGETS
Holding Period: 4 months
Target Return: 19.2%
Annualized Return: 57.6%
Target Price: $31
Stop Loss Level: $21

COMPANY DESCRIPTION
Dick’s Sporting Goods, Inc. is an omni-channel sporting goods retailer offering an assortment of sports equipment, apparel, footwear and accessories in its specialty retail stores primarily in the eastern United States. The Company also owns and operates Golf Galaxy, Field & Stream and other specialty concept stores, and Dick’s Team Sports HQ, an all-in-one youth sports digital platform offering free league management services, mobile applications for scheduling, communications and live scorekeeping, custom uniforms and FanWear and access to donations and sponsorships. Link to company website.

TRADE RATIONALE       
It’s been a tough year for retail sporting goods stocks as evidenced by the recent bankruptcy of The Sports Authority (TSA). But as we saw in the electronics retail sector after H.H. Gregg closed down its stores six months ago, competitor Best Buy’s (BBY) stock surged as it picked up a big chunk of that customer base.

In the case of Dick’s Sporting Goods (DKS), its share price has not yet reacted to the closure of TSA due to continued negative sentiment towards the entire sector. Despite reporting solid Q2 results two months ago, DKS has been selling off along with the rest of the sector as concerns over the impact online etailing giant Amazon may have on future earnings.

Now trading at less than 9 times forward earnings despite 23% quarterly earnings growth (YOY), our Rapid Profits Matrix believes DKS has become oversold and likely to rally over the remainder of this year. Unlike TSA which was overleveraged, DKS has a solid balance sheet with long-term debt of $191 million compared to net current assets of $767 million so it is at no risk of going out of business anytime soon.

Of course, for this trade to pay off the market’s attitude towards DKS will need to change. If its next quarterly report doesn’t do it (scheduled for mid-November), then the holiday shopping season should confirm our hypotheses that DKS is successfully emulating Best Buy’s strategy for fending off Amazon (as described on the bottom  half of page 11 in this recent Q&A with the CEO of DKS).

NOTE: This stock is optionable.