In light of Super Bowl LI, many sports fanatics are shopping for last-minute deals on sportswear. Several sports apparel companies also offer good value potential to investors. One company, Hibbett Sports Inc. (HIBB, Financial), made four value screeners as of Feb. 3, suggesting strong value potential compared to other companies.
Company overview
In 1945, Hibbett Sports began as Dixie Supply Company in Florence, Alabama, as mentioned in its full-year 2016 annual report filing with the Securities and Exchange Commission. Twenty years later, the company opened Dyess & Hibbett Sporting Goods in Huntsville, Alabama and hired Mickey Newsome, the company’s current chairman of the board. Currently, Hibbett Sports operates sporting goods retail stores in small to mid-sized markets in the Southwest, Mid-Atlantic and Midwest regions of the U.S.
Hibbett Sports has a strong financial outlook for 2017, with financial strength and profitability both ranking 9 out of 10. The company focuses on small communities, allowing the company to “achieve significant cost benefits” and increase economies of scale (Source: company 10-K for full-year 2016). Hibbett’s ability to align its merchandising mix to local preferences and trends gives the company competitive advantages, which leads to consistent operating margin and per-share revenue growth, high returns on equity and good Greenblatt earnings yield.
As the company has a five-star GuruFocus Business Predictability Rank and good valuations, Hibbett Sports made four value screeners as of Feb. 3, 2017: the Undervalued Predictable Screener, the Buffett-Munger Screener, the Historical Low Price-Sales Screener and the Historical Low Price-Book Screener. This suggests Hibbett Sports has strong value potential for 2017.
Company has strong value potential compared to competitors
Hibbett Sports is a rising star in the sports apparel industry, which is currently dominated by companies like Nike Inc. (NKE, Financial), Under Armor Inc. (UA, Financial) (UAA) and Adidas AG (XTER:ADS, Financial). Compared to its competitors, Hibbett Sports has the highest financial strength rank and profitability rank as Figure 1 illustrates. The Alabama-based sports apparel company also has a higher predictability rank than does sport giant Nike.
Figure 1
Hibbett Sports has strong financial strength primarily due to robust cash-debt ratios and interest coverage. Despite a satisfactory Piotroski F-score of 6, the company has a solid Altman Z-score of 8.66. Hibbett’s Piotroski and Altman scores outperform those of Nike, Dick’s Sporting Goods Inc. (DKS, Financial) and Under Armor as illustrated in Figure 2. Only Foot Locker Inc. (FL, Financial) has higher Piotroski and Altman scores than does Hibbett Sports.
Figure 2
Even though Hibbett’s profit margins slightly underperform those of Nike and Adidas, the company has a higher operating margin and net margin than does close competitor Finish Line Inc. (FINL, Financial) in terms of revenue and market cap. Figure 3 shows the historical trend of the two companies’ operating margins while Figure 4 compares Hibbett’s profit margins to those of its competitors.
Figure 3
Figure 4
While all companies (except Finish Line) have high profit margins, Hibbett Sports has the lowest price-earnings without nonrecurring items, suggesting Hibbett is undervalued relative to its peers. Figure 5 compares Hibbett’s valuations with its competitors.
Figure 5
The company’s P/E (nri), P/S and P/B ratios are near a 10-year low, as illustrated in Figure 6. Additionally, the company’s stock trades near a five-year low as Figure 7 illustrates.
Figure 6
Figure 7
Conclusions and see also
As the company has strong value potential for 2017, John Hussman (Trades, Portfolio) invested in 128,200 shares of Hibbett Sports during fourth-quarter 2016. The stock averaged $40.51 per share.
As the U.S. stock market remains significantly overvalued, the market has high recession risk. Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio), co-managers of Berkshire Hathaway Inc. (BRK.A, Financial) (BRK.B, Financial), developed a four-criterion investing strategy that has outperformed the market during seven of the past eight years. Premium members have access to all value screeners and the Aggregated Portfolio of Gurus, another GuruFocus feature based on defensive investing strategies. If you are not a Premium member, we invite you to a free 7-day trial.
Disclosure: The author has no position in the stocks mentioned in this article.
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