Dicks Sporting Goods Inc (DKS), Cabelas Inc (CAB): A Sporting Way to Make a Winning Investment

There is no doubt that Americans love sports and competition. Typically, we only think of professional athletes or team owners as being in a position to profit from that situation. However, there is a way that virtually anyone can make very solid profits over many years: by investing in the businesses that supply us with the equipment we use in pursuit of our love of sporting activities. The global sporting goods industry is projected to reach total sales of $303 billion in 2015 and the U.S. is the world’s leading consumer of these products. Anytime the numbers are this large, it is worth looking for the opportunity to profit.

Sporting goods superstores

Generally, when most people think of “superstores,” businesses like Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) come to mind, and that is to be expected. However, in the minds of sports and outdoor enthusiasts, the names are just as likely to be Dicks Sporting Goods Inc (NYSE:DKS) Goods, Cabelas Inc (NYSE:CAB) or Bass Pro Shops. All three of these large retailers specialize in offering a wide variety of products for the sports and outdoor enthusiast, but Dick’s covers the broadest range, as Cabela’s and Bass Pro Shops tend to cater more to the hunting and fishing crowd. These businesses offer shopping in large “superstore” type formats as well as catalog and on-line sales.

A good outdoor superstore

Cabelas Inc (NYSE:CAB) actually achieved a large part of its name recognition through the distribution of mail order catalogs long before the Internet was an integral part of our daily lives. Based in Sidney, Nebraska today, it was started in 1961, literally at the kitchen table of Dick and Mary Cabela as a mail order business. From those humble beginnings, the business has grown to 44 stores in 27 states and three Canadian provinces, in addition to its robust mail order catalog and Internet business. Today, the company boasts a $3.98 billion market capitalization.

Cabelas Inc (NYSE:CAB) has increased its earnings at an annualized pace of 14.57% over the last five years with an average net margin of 4%. With earnings projected to continue growing at a pace of 16.4% per year for the next five years and a current P/E ratio of 17.44, it would appear the stock is quite reasonably priced. However, 5-year average returns on equity, assets and capital of 10.6%, 3% and 4.4% do not indicate exceptional capital efficiency, which always concerns me.