Dicks Sporting Goods Inc (NYSE:DKS) is a leading operator of sporting goods stores, with over 550 locations in 43 states.  Dick’s has done an excellent job of growing revenues over the past decade (see chart), and as a result, shareholders have been handsomely rewarded as the stock has climbed from $3 in 2003 to the current level of just under $50.

However, I believe that the stock may be getting a bit expensive at this point.  I don’t believe that the high growth rate seen in the past will continue enough to justify the high valuation the company currently trades for.  First, let’s take a look at the company and where it is going.

Dick’s Sporting Goods stores offer a full range of sporting goods equipment, apparel, and footwear. Dicks Sporting Goods Inc (NYSE:DKS)’s carries merchandise from over 1,200 suppliers, the largest of which is NIKE, Inc. (NYSE:NKE), which represents about 15% of the company’s merchandise.  Under Armour Inc (NYSE:UA) also has a very significant presence in the stores, with their apparel usually front and center.

Speaking of those two companies, although Nike is still a dominant market leader, I think it is very possible for Under Armour to overtake them as the number one manufacturer of athletic clothes in the not-too-distant future.  I have written a full post about Under Armour’s growth potential, however here is a brief summary:

Under Armour’s revenues are currently just under $2 billion a year and rising rapidly.  They are widely known for their synthetic performance apparel (compression-wear), a concept that they practically invented and have a 60% share of the $3 billion annual sales of this type of clothing.

However, it was just over a year ago that they began to sell cotton performance apparel, which is a much bigger $12 billion market, in which Under Armour has barely made a dent.  It is not inconceivable, given their reputation for exceptional quality, that they could make serious inroads in this arena as well.

Nike is still the footwear leader, and I see this continuing for years to come.  However, the stock is a bit too expensive right now at 22.8 times earnings.  If I’m paying that much of a premium for a company, I want it to have growth potential like Under Armour’s.

Back to Dick’s Sporting Goods, which is fortunate enough to sell both of these great companies’ products:

In the past decade, Dick’s has aggressively expanded its number of stores, as well as grown through acquisitions in order to enter new geographic areas, as was the case with the 2004 acquisition of Galyan’s Trading Company.  They very well may continue to open new stores, but I believe it will be at a slower rate than in the past.

Dick’s has also gained market share as smaller competitors such as local sporting goods stores have ceased operations.  This is also one of the most referenced catalysts mentioned in analyst reports.  However, if you believe (as I do) that the economy has significantly improved and will continue to do so, this simply cannot be counted on anymore.