This Sporting Goods Stock Is Crushing the Market, and It's Not Too Late to Buy

Physical sporting goods retailers were supposed to have died off years ago — just look at names like Sports Authority, Modell’s, and Olympia Sports that have filed for bankruptcy in recent years.

But Academy Sports (ASO) didn’t get the memo — not only is it alive and kicking, it is trouncing the returns of the broader market. The sporting goods retailer is up nearly 40% over the past year, while the Nasdaq Composite, where it is listed, is down about 24% over the same time frame. Meanwhile, the Dow Jones Industrial Average and S&P 500 are down 4% and 13% during this period, so it’s not just the tech-heavy Nasdaq that Academy Sports is outperforming. 

And it’s not like this recent performance is an anomaly — Academy Sports has returned over 300% since its 2020 IPO. Even after its 2022 surge, Academy Sports still looks like a strong buy. Here’s why. 

Image source: Getty Images

What is Academy Sports?

As the name suggests, Academy Sports is a sporting goods retailer. The Texas-based company has been around since 1938, and it now has 268 locations in 18 states, primarily in the southeastern United States. It sells sporting equipment, apparel, footwear, and equipment for outdoor activities like hunting, fishing, and camping.

The stores are spacious, averaging 70,000 square feet, which gives Academy plenty of room to feature an extensive selection of merchandise. Academy offers merchandise from popular, premium brands, and it also offers its own private-label brands such as Magellan, BCG, and Freely at affordable price points.

Academy’s mission

From my perspective as an investor, companies need a “reason to exist” — Academy’s mission statement is “fun for all,” and as such, it aims to make sports and outdoor activities fun and accessible to all. The company lives up to providing this value, with offerings like kid’s bikes for $60 and private-label hats and T-shirts for $4.99. Academy also differentiates itself with a localized focus on merchandising, such as offering crawfish cookers in Louisiana and smokers in Texas.

Expansion on deck

Academy Sports has its sights set on further expansion across the U.S. The company opened 10 new stores in 2022, moving in to states like Virginia and West Virginia for the first time. It aims to increase its store count by roughly 30% (80 to 100 new stores) by 2026.

The retailer plans to achieve this growth with “in-fill” locations in markets where it already has a presence, expanding into adjacent markets, and by entering totally new geographies.

Academy says that if each new store is a $20 million opportunity annually (which seems reasonable, based on the average unit volume of its current locations), this expansion should generate up to $2 billion in additional annual revenue, which would be a significant addition to the company’s current $6 billion annually. 

Why are shares of Academy so cheap? 

While Academy is an attractive growth stock, it’s also very much a value stock. Even after its resurgent 2022, the stock trades at under 8 times earnings and just about 7 times forward earnings, which is far cheaper than the broader market. In fact, this is about half the multiple for the broader S&P 500, which seems way too cheap.  

Academy Sports also looks like a buy from a price-to-earnings growth (PEG) ratio perspective. This metric accounts for a stock’s earnings growth when valuing it by dividing its price-to-earnings multiple by its earnings growth rate. Investors generally view a stock with a PEG ratio of under 1 as undervalued, so Academy Sports looks stellar in this regard with a PEG ratio of 0.7.

Academy likely has a cheap multiple because investors associate this market with the slew of bankrupt sports retailers, but as mentioned, Academy differentiates itself and has carved out a real “reason to exist.” Investors may worry that Amazon will eventually eat Academy’s lunch. But Academy has coexisted with Amazon for a long time, and it hasn’t stopped the business from growing yet, so the sporting goods retailer deserves some more credit from the market. 

There is likely also concern that Academy received a one-time boost to results from a surge in interest in outdoor activities during the COVID pandemic. While this certainly benefited Academy, it’s also possible that many of these new outdoor sports participants will find that they like the new hobbies they picked up during this time and will stick with them.

Even if some of them eventually ditch their new hobbies, the total customer base should be higher than it was before the pandemic. While revenue during the most recent quarter fell about 6% from the year before, it still came in 30% higher than in 2019. Statista forecasts the worldwide Sports and Outdoor market to grow at a CAGR of just over 10% through 2027, indicating that there is still plenty of room for growth ahead.

A new dividend stock 

Additionally, Academy Sports is a dividend stock. While the dividend yield of 0.5% may not seem like much to write home about, the company initiated this dividend in 2022 and with a minimal dividend payout ratio, and it has plenty of room to grow over time.

Academy looks like an appealing combination of growth and value going forward. The company has carved out an appealing niche for itself with its localized focus and the value it offers its customers. The company’s expansion plans offer a viable pathway to long-term revenue growth, and shares look incredibly cheap at under 8 times earnings.

All this means Academy Sports looks like a strong buy that investors can hold in their portfolios for a long time.