May 24, 2022


Skillful Business Crafters

2 Market Overreactions I Bought Last Week

I went bargain hunting last week. I bought shares of Dick’s Sporting Goods (NYSE:DKS) and added to my existing position in Genius Sports (NYSE:GENI) on Tuesday. The two stocks were falling after posting fresh quarterly results. 

I’m not a “buy the dip” investor, but that doesn’t mean I can’t spot a market overreaction when I see it. I believe the market got both reports wrong, and even though the stocks would continue to slide through the holiday-abridged trading week, I stand by my latest portfolio moves. 

Image source: Getty Images.

Dick’s Sporting Goods 

It’s been four years since Dick’s Sporting Goods recognized it needed to make a change. The clock was ticking on traditional sporting goods superstore chains, and it needed to evolve if it wanted to survive and thrive. 

The makeover aimed to make a visit to a Dick’s Sporting Goods more experiential. It boosted its merchandise presentations, lifting the athlete experience to an aspirational level. The chain also invested in data science and tech. Instead of a cookie-cutter approach, Dick’s Sporting Goods reallocated its retail space to regionally relevant and growing merchandise. It firmed up its customer service externally and its selling culture internally. 

The strategy worked, as the stock has popped fivefold in the past four years. The company really started to click when the pandemic turned us into homebodies. Hungry for active lifestyles — at home or in socially distanced outdoor settings — business started to pick up. A 9.5% increase last year may not seem like much, but it was the chain’s headiest growth in six fiscal years.

Things have been even better this year. Dick’s Sporting Goods has come through with three “beat and raise” quarters. Net sales have soared 38% for the 39 weeks through the end of October. Put another way, net sales so far this fiscal year are up 46% compared with two years ago.

You would expect a stock with this kind of growth would be trading at a healthy premium to the market, but new guidance calls for adjusted earnings per share to clock in between $14.60 and $14.80 this fiscal year. We’re talking about a company trading for less than nine times this year’s projected adjusted profit. There’s also a reasonable 1.4% dividend yield here. 

Genius Sports

An entirely different sports play — with an entirely different valuation play — is Genius Sports. It’s a provider of data and software solutions for the gambling and media industries. Genius Sports has more than 650 long-term partnerships with sports leagues and sportsbook operators. Over 97% of the U.S. market uses NFL data exclusively through Genius Sports, and that’s just one sport.

After back-to-back years of 31% revenue growth, the game is starting to pick up the pace for Genius Sports. Revenue has risen 52%, 108%, and now 70% through its first three quarters of this year. 

Genius Sports also raised its full-year guidance last week, but — to be fair — the increase is less than the amount of its third-quarter beat. In other words, its outlook for the current quarter is slightly less than what was implied by its forecast three months ago. 

This isn’t Dick’s Sporting Goods. Genius Sports is still a couple of years away from profitability, and there’s no dividend. However, with the stock now more than 60% below its springtime high — and below the $10 price of the SPAC that eventually took it public — it’s a good price for a company that is emerging as a basket play for the expanding sportsbook market.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.