Academy Sports Stocks provide value at prices

Price action is starting to favor some retail stocks, but not all are created equal. Academy Sports and Outdoor Activities Inc. NASDAQ:ASO it’s a discount you can get today. Even after rallying as much as 74% over the last two quarters, it still trades at a 50% discount to the Leisure and Leisure Products sector.

The leisure and recreational products industry, which includes companies such as Academy Sports, Dick’s Sporting Goods Inc. NYSE: DKS AND Yeti Holdings Inc. NYSE: AGAIN, trades today at an average forward P/E of 16.5x. This valuation benchmark can help you spot valuable opportunities, but that’s not all. According to the CME FedWatch Tool, the Federal Reserve could cut rates as early as May this year. This would mark the start of a new cycle for consumer discretionary stocks and boost the spending power of the American consumer – an economic boost that could reverse the discount on stocks like Academy Sports. This is why Wall Street has its eyes on stocks now, before the opportunity disappears.

Enough momentum to beat the industry and the market?

Over the past 12 months, the Consumer Discretionary sector and the broader S&P 500 index have performed in lockstep. Academy Sports shares have both underperformed by 12% during this period, opening up a reasonable discount factor for those who know where to look.

Zooming in on the 6-month mark, you’ll notice that Academy Sports stock has actually outperformed both the sector and the market by nearly 30%.

Counting on the continuation of the momentum of the last two quarters, The Goldman Sachs Group Inc. NYSE:GS bought up to $13 million in Academy Sports stock, a 20.6% increase in its already sizable position.

Half the price, double the growth of Dick’s Sporting Goods

A discounted stock does not automatically mean it is a good investment opportunity. After all, a stock might be cheap for a reason not yet known to the broader market. This is why you should be looking for at least above-average growth in earnings per share (EPS).

Comparing Academy Sports to its closest peer, Dick’s Sporting Goods, shows that a gap is forming for a value game. EPS growth of 4% makes Dick’s Sporting Goods a blip on the radar for Academy Sports’ 8% projection. While both trade at a discount to the industry, here’s why Academy Sports takes the cake.

Despite being set to grow at double the rate of Dick’s Sporting Goods, Academy Sports shares are still trading at a discount, not just to Dick’s Sporting Goods but to the industry. Its forward P/E of 8.3x puts it 50% below the industry average and 46% below Dick’s Sporting Goods’ 16x forward P/E valuation.

Not only that, but Dick’s sporting goods director, Lawrence J. Schorr, got rid of $455,000 of his stock in the company. This news, along with the difference in company valuations and EPS growth, may have supported Goldman Sach’s decision to invest in Academy Sports stock instead of Dick’s Sporting Goods. Analysts know this is a money maker

Analysts at Wells Fargo & Co. New York Stock Exchange: WFC they raised their price targets on Academy Sports stock to $88 per share. The stock would need to rally as much as 25% to prove these valuations are correct, which is good for a retailer.

With a market capitalization of just $4 billion, Academy Sports is half the size of Dick’s Sporting Goods. But the company’s financial data shows that it stands out in one significant way: an impressive average rate of return on equity (ROE) of 35%. This means that every dollar invested will grow significantly in the long term.

Despite trading at a discount to Dick’s Sporting Goods, Academy Sports is expected to grow its EPS at double the rate of its main competitor. But both companies are matched in price action. Dick’s Sporting Goods stock is trading at 95% of its 52-week high and Academy Sports at 94%, which tells you something.

It’s possible that Dick’s Sporting Goods’ future growth may already be priced into today’s stock value, limiting its upside. =. On the other hand, it is likely that the potential of Academy Sports has not yet been realized. If that were the case, the company’s forward P/E would be very different than it is today.

Academy Sports’ recent nearly $307 million buyback suggests the stock is cheap right now. And with the company’s next quarterly earnings announcement scheduled for March 21, it’s possible that management could surprise shareholders with an even larger buyback program.

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