The sporting good business has been strong in recent years — Academy Sports and Outdoors (ASO) has benefitted from the pandemic fueled purchase of sporting equipment as more people engage in outdoor activities, notes Ian Wyatt, editor of Million Dollar Portfolio.

The retailer operates 260 stores in 16 states with a concentration in faster growing areas of the U.S. such as the southeast and Texas. Same-store-sales are down slightly from last year. That’s because sales exploded in 2021 following the depths of the pandemic.

However, when we look at the total growth over the last two years it’s impressive. The company’s sales are up 35% in the last two years — despite opening only one new store during the period. This demonstrates the considerable overall growth at Academy stores.

Retail is the bread and butter of the company. However, e-commerce sales grew nearly 19% in the last quarter. Online sales now account for almost 10% of total sales. And in the last 3-years the online channel has grown four-times.

There is concern that a future recession could hurt sales of sporting goods. However, it seems like playing sports and outdoor activities will always be a relatively low-cost way for kids and adults to have fun.

This year the company expects to generate around $6.5 billion in sales. And that’s expected to drop $550 to $615 million to the bottom line, according to management guidance.

Earnings per share should come in around $7 this year, and growing to $7.64 next year. Eight new stores are planned for this year. Plus, another 80 to 100 stores over the next five years. This translates into nearly a 40% increase in the number of stores.

Academy is on solid financial footing with over $470 million in cash – equaling 12% of the company’s market value. And it’s completely debt free.

I always love investing in stocks that are returning cash to shareholders. During the first quarter, the company returned $95 million in cash to shareholders. This included $88 million in stock buybacks. The board approved a $600 million stock buyback plan — on top of an outstanding $100 million plan.

Stock buybacks only make sense if a company’s shares are cheap. The good news is that Academy shares are incredibly cheap. That means the stock is trading at 6-times EPS estimates for the current year. The price-to-sales multiple is tiny at 0.5-times. Right now is an attractive time to enter the stock.

The combination of a cheap valuation and future growth is a winning combination. This is exactly the type of value stock that I want to own. I expect to build a position and hold this stock for 3 to 5 years as we watch management execute its plan.

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