Joel Greenblatt (Trades, Portfolio) is founder and managing partner of Gotham Asset Management LLC. He is known for the invention of Magic Formula Investing. He is the author of two investment books, including "The Little Book that Beats the Market." He is also an adjunct professor at the Columbia Business School.
Greenblatt tries to find cheap and good companies. He looks for value with a catalyst. Greenblatt likes special situations and thinks that they are simply different places to find cheap stocks. In his own hedge fund, Greenblatt uses the basic principles in the Magic Formula: Look for high ROC and high earnings yield. He tries to figure out what "normalized earnings" will be 3-4 years into the future. Greenblatt makes sure the stock is very cheap based on normalized earnings.
Last quarter, he increased his holdings in Dick's Sporting Goods (NYSE:DKS) by buying 611,604 shares. As of June 30, he held 616,727 shares of the company. The following chart shows his holding history in the company.
Dick's Sporting Goods is a full-line sports and fitness retailer offering a broad assortment of high quality, competitively priced brand name sporting goods equipment, apparel and footwear in a specialty store environment. The company also owns and operates Golf Galaxy LLC, a golf specialty retailer.
The company has seen quite a bit of volatility in its stock price since the beginning of 2014. Dick's stock price corrected meaningfully in the first half of 2014. The main culprit was continued pressure in its golf and hunting business which affected its comparable store sales. The company's hunting business comped down mid-single digits while the company's golf business comped down in high single digits during the first three quarters of last year.
However, the good news is that the company's hunting business is expected to improve going forward as year-over-year comparisons begin to ease. Also, in the second half of 2014, the company has reallocated 1,000 square feet of its golf equipment area to women's and youth athletic apparel. Customer response to the new product selection and merchandising presentation has been positive. So, going forward, we can expect headwind from the company's golfing and hunting business to dissipiate. Going forward, the company has guided for 2015 full year consolidated comp growth of 1% to 3% with earnings increasing to $3.13 to $3.21 per diluted share. The company can do better than it has guided for given its stabilizing hunting and golf business and the strong trend in the rest of the business.
The company is undergoing fast expansion, and its store count has increased from 561 in the begining of Fiscal 2012 to 694 at the end of fiscal 2014. In the last quarter, the company opened seven new stores.
In addition to high growth prospect, management is also showing strong commitment to returning capital to shareholders. The company has repurchased over $455 million of stock since the beginning of 2013. The company has a dividend yield of 1%.
The company's EPS forecast for the current fiscal year is $3.19 and next year is $3.55. According to the consensus estimates, its top line is expected to grow 9.00% current year and 8.70% next year. Out of 31 analysts covering the company, 11 are positive and have buy recommendations, and 20 have hold ratings. There have also been rumors of the company going private and given the attractive valuation of just 14.5x forward PE, we can clearly see why it makes sense. Dick's Sporting Goods is a good GARP (growth at a reasonable price) stock to have in your portfolio.
