The Market Overreacted: Dick’s Sporting Goods Inc. (DKS), Foot Locker Inc. (FL), Nike Inc. (NKE)

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When we look at Dick’s gross margin of 31.82%, the company can improve this number in the future. Foot Locker Inc. (NYSE:FL) managed a 33.14% margin in their most recent quarter. Dick’s better locations, and bigger selection, should allow for some margin expansion.

When it comes to new store growth, Dick’s is planning on opening a total of 45 new stores across all of their concepts during 2013. With 599 total stores, this represents new store growth of about 7.5%. The company says they expect same-store sales of 2% to 3% for the full year. Assuming no margin expansion, this should mean revenues would increase by 9.5% to 10.5%.

In the current quarter, Dick’s saw 12% revenue growth equate to a 17% increase in EPS. It makes sense that a 9.5% to 10.5% revenue increase would generate the 15.5% EPS growth analysts are expecting.

What about the valuation?
Relatively speaking, Dick’s Sporting Goods Inc. (NYSE:DKS) looks like a much better value than their two of their biggest customers. Nike, Inc (NYSE:NKE) and Under Armour are currently selling for 2 times, and 1.65 times, their respective growth rates. By comparison, both Dick’s and Foot Locker Inc. (NYSE:FL) trade for about 1 times their expected growth rates.

Since both Dick’s and Foot Locker pay dividends, investors are getting a quarterly check while they wait. While Foot Locker Inc. (NYSE:FL) is a classy organization, Dick’s seems like the better value today. The company’s much smaller store footprint means they have a longer growth track going forward. Dick’s Golf Galaxy concept also holds promise and only has 81 total stores.

Dick’s Sporting Goods Inc. (NYSE:DKS) doesn’t have any problems that long-term investors should worry about. Their investments this year are smart and should create additional sales going forward. It seems like this is just another case of the market overreacting. I would suggest investors add DKS to their personalized Watchlist to keep up with developments.

The article The Market Overreacted originally appeared on Fool.com and is written by Chad Henage.

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