Despite the difficult 2020 retailing environment Academy Sports and Outdoors (ASO) chose to pursue an initial public offering, selling 17.4 million shares for $13.00 each during October and November 2020, observes Douglas Gerlach, editor of Investor Advisory Service.
After reporting two excellent quarters as a public company, the stock has more than doubled. Even after this robust advance, shares are reasonably priced, and the company should benefit from the economy’s reopening and long-term growth initiatives.
Max Gochman started Academy in 1938 when he opened the Academy Tire Shop in San Antonio, Texas. Today Academy operates 259 Academy Sports + Outdoors stores in the South, Southeast, and Midwest that include fastest growing Dallas, Houston, Atlanta, Austin, Charlotte, and San Antonio.
Stores offer a value-based, wide assortment of goods in outdoor, apparel, footwear, and sports and recreation categories. Merchandise includes national brands and a portfolio of 17 owned brands Academy uses to provide value at various price points. With no mall exposure, store fronts support curbside pickup and BOPIS (Buy Online Pickup In Store) checkout.
In 2011, private equity firm Kohlberg Kravis Roberts & Company (KKR) purchased Academy from the Gochman family, which retained a minority interest. After several years of store expansion, across 2017 and 2018, KKR installed a new management team that brought substantial retail and e-commerce experience to the business.
In the long-term, the company believes it can sustain annual double-digit earnings growth through various strategies. After pausing store growth in early 2020 due to the uncertainty of the pandemic’s path, management will remodel 30 stores in fiscal 2021 with a focus on tailoring merchandise offerings to local tastes.
To generate a price target, we selected a high and low P/E range of 15 and 7, respectively, based on the previous five-year trading history for comparable public sporting goods retailers.
Assuming average annual EPS growth of 12% implies EPS of $4.29 after five years. When combined with an average high P/E of 15, shares could reach $64.
To get our low price estimate of $20, we combine fiscal 2021’s analyst consensus EPS of $2.83 with the average low P/E of 7. This equates to an upside/downside ratio of 3.8 to 1 and potential compound annual return of greater than 17%.
