Be a Prudent Buyer of Dick’s Sporting Goods After Blowout Earnings

Dick’s Sporting Goods (NYSE:DKS) shot higher on May 26, 2021 after the company reported strong first-quarter earnings. The sporting goods retailer’s revenue is being fueled by the continuing trend towards home fitness. And the company is also reporting strong demand for equipment as youth sports are now back in season. 

However, after a 16% gain in the DKS stock price, it may be time for the bulls to proceed with caution. The double beat is not new for the company. In fact, this earnings report made it four straight quarters where Dick’s had delighted investors on the top and bottom lines. That explains why the stock was up 50% year-to-date before the earnings announcement. 

The Bulls May Want to Run 

I’m not going to suggest the bulls have no argument. The company’s net quarterly sales of $2.92 billion was a 119% increase from the same quarter in 2020. And same-store sales were up 115% in that same period. To be fair, that same quarter in 2020 was the first “pandemic” quarter. So it shouldn’t be that surprising to see Dick’s generate such a robust beat.  

At the same time, the first quarter has historically been one of the weaker quarters for Dick’s in terms of revenue. So seeing such a strong number must be encouraging for the retailer.  

And the company raised its revenue forecast to between $10.52 billion and $10.81 billion for 2021. That compares favorably to the $9.58 billion in revenue the company earned in 2020 and the $8.75 billion in 2019.  

E-Commerce Is Leading the Way 

The revenue numbers for Dick’s Sporting Goods are a reminder that brick-and-mortar retail is not dead. However, in 2021, specialty retailers like Dick’s need a strong e-commerce presence. In the quarter just ended, Dick’s reported a 14% increase in e-commerce sales. That was up 110% from the same period last year (when many of its stores were closed).  

And another essential part of a company’s e-commerce strategy is the idea of omnichannel delivery. In-store pickup and curbside delivery increased over 500% from 2019.  

But the Bears Have a Case as Well 

It’s generally good news when a company increases its earnings outlook. And Dick’s is now forecasting it will deliver between $8 and $8.70 in earnings per share. However, even the upper end of that range would be slightly less than the $8.84 EPS the company earned in 2020.  

And as my MarketBeat colleague Thomas Hughes cautioned investors recently, short interest in DKS stock remains high. In fact, as of this writing, short interest in DKS stock is still over 17% of the float.  

These may be two reasons why the stock still receives a consensus “hold” rating and a price target that suggests the stock may drop by over 16% from its current price.  

DKS Stock Is Strong, But May Be Priced For Perfection 

One year ago, many analysts would have advised investors to stay away from Dick’s Sporting Goods stock. With youth sports shut down, the forecast for the company looked bleak. But DKS stock told a different story. Americans sought solutions for working out at home. And while most of the world wasn’t looking, many youth sports were still taking place.  

That’s why, by the middle of October 2020, DKS stock was at a five-year high and it’s been nothing but growth since then. But as investors know that stocks don’t move in one direction all the time.  

Dick’s Sporting Goods looks like a strong stock that may be priced for perfection. And that means if you haven’t already taken a position on DKS stock it may be better to wait until there’s some price consolidation.