DKS Posts Positive Q2 Earnings, Stock Might Be Overvalued

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Aug. 25 2021, Published 9:07 a.m. ET

With Dick's Sporting Goods Inc. (NYSE:DKS) second-quarter earnings call officially behind us, investors are rallying in the pre-market. The sporting goods retailer gained steam in the last fiscal quarter, but it's possible that DKS stock is overvalued.

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Dick's Sporting Goods' sales are up big time. However, is that really enough to give the stock long-term potential?

A rundown of Dick's Sporting Goods' Q2 earnings

Early on Aug. 25, Dick's reported a 21 percent YoY sales growth for the fiscal quarter ending July 31. Compared to the same quarter in 2019, sales are up 45 percent.

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This upward trajectory aligns with shopping habits during the COVID-19 pandemic. Retailers across the country have seen an upward trajectory including Target (NYSE:TGT) and Lowe's (NYSE:LOW).

Other highlights for Dick's earnings report include:

  • An EPS (earnings per share) of $5.08, which is a lot more than the $2.80 that analysts expected

  • Revenue of $3.27 billion—an increase from analysts' expectations of $2.85 billion

  • A net income of $495.5 million—up 80 percent from the same quarter the previous year

  • A same-store sales increase of 19.2 percent YoY

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The earnings report went so well that Dick's even promised a special dividend for loyal shareholders.

How DKS stock is responding

DKS stock is already up 2.21 percent in pre-market trading hours. The shares are up 104.19 percent YTD. The latest gain looks a lot like the 17 percent boost in May when Dick's reported earnings for the previous quarter.

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Why DKS stock looks overvalued

When comparing past business growth to the current earnings trajectory, DKS stock seems overvalued. The shares are trading more than 137 percent higher than the pre-pandemic peak in January 2020.

Analysts estimate that future business performance will cool, which could mean DKS stock has some corrections in its path. Investors who bought in over the last six months could see their portfolio shift if or when DKS stock falls. Overall, analysts' median forecast puts DKS stock at 5 percent in the green over the next 12 months. If the stock rises in early market hours following the earnings report on Aug. 25, that prediction could adjust.

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As of Aug. 25, DKS is trading at $114.39 per share. The market cap is $10.21 billion.

Is the rally over for DKS stock?

Some investors think that it's too late to get in for Dick's Sporting Goods simply because of the stock's incessant gains over the last year. However, others are buying in for the promise of special dividends. Holding the stock makes sense if you already have a position.

Will Dick's Sporting Goods stock split?

Dick's Sporting Goods stock is nearly triple its value this time last year. It's possible that DKS stock could perform a two-for-one split in the future given the fact the company has done so twice in its history (once in 2004 and once in 2007). Stay tuned for potential stock split news to find out what will happen to your DKS holdings. Keep in mind that a stock split won't innately change how much you've invested in Dick's.

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