Throughout the last few years, we’ve seen hit-and-miss results from sports stocks. Some have done great, while others have both impressed and depressed investors at certain points.
With all the negativity surrounding retail, these impressions have been exacerbated. We knew there would be some losers, but some of these stocks have been downright awful.
So how do they look going forward? That’s what we’re here to find out. Below are seven well-known, brand-name sports stocks that have had their bell rung. But just because they’re on the ropes doesn’t mean they’re bleeding out.
Let’s see which ones can get up and keep fighting, and which are already down for the count.
Sports Stocks to Buy: Foot Locker (FL)
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How It’s Faring: Keep on Fighting
Before we get to the big dogs, let’s take a look at the one that’s been hit the hardest most recently. Shares of Foot Locker, Inc. (NYSE:FL) cratered 16% last week after the company reported earnings. Ouch.
Shares were flat on the year prior to last Friday, but surprisingly are still up 9% over the past 12 months. In a nutshell, Foot Locker was one of the few retailers still doing good out there.
FL stock missed on earnings per share and revenue estimates. Comp-store sales came in below analysts’ estimates, and margins also contracted slightly.
Despite the results, it may be worthwhile for investors to pick over the scraps. First, management told us that sales have notably improved since the first quarter. In fact, comp-store sales are up high-single digits in March and April. Also, the stock’s not expensive. FL trades at just 10.7x forward earnings, which are expected to grow 9.8% this quarter and 6.8% this year.
Additionally, Foot Locker pays a 2.1% dividend yield. For those thinking long-term, management has grown the dividend by more than 10% annually over the past five years.
The earnings weren’t great. But investors are trigger-happy when it comes to retail and apparel. They want to sell on any weakness. FL stock was clinging for dear life near $58, but investors wanting to take a stab could do it here. With a stop-loss just below that level, the risk-reward is reasonable.
Sports Stocks to Buy: Nike (NKE)
How It’s Faring: Keep on Fighting
At one point, the worst seemed to be over for Nike Inc (NYSE:NKE). Then the stock tripped and fell 7.5% in May and suddenly we’re reassessing the name.
NKE shares are still up 3.4% on the year, so there’s hope that the leading sports apparel maker can still get its mojo back. But the major problem with the company is the same thing that has been plaguing the rest of retail. Without a robust retail environment, Nike simply isn’t worth as much. That’s not to say shares will fall another 10% or more, but its valuation could be suspect.
Analysts only expect earnings to grow 11% in 2017 and 5.8% in 2018. Is that worth a forward price-to-earnings ratio of 20.7? That’s what investors are trying to decide, and without the powerful brand name, the answer would most certainly be “no.”
To Nike’s credit, management has topped analysts’ EPS estimates for at least 13 straight quarters, so the likelihood is that the streak continues. Future orders — or what Nike is selling to retailers in the next five to six months — has been less than robust lately. However, it’s because Nike has been putting more emphasis on its direct-to-consumer business.
In other words, NKE has been relying more on its own retail footprint and e-commerce to sell its goods. That’s great news for investors, and something many of them seem to be overlooking.
Additionally, Foot Locker management noted that certain Nike models have been selling very, very well. We’ve named Nike to our Future Blue Chips list, in part because of its double-digit growth in its dividend. Shares currently yield 1.4% and we’re sticking with the name. While there are some short-term headwinds, the long-term story with Nike is still attractive.
Sports Stocks to Sell: Under Armour (UA, UAA)
How It’s Faring: Down for the Count
At one point, Under Armour Inc (NYSE:UAA, NYSE:UA) was thriving in the spotlight. From the start of 2013 to mid-2015, UAA stock rallied about 330% from $12 to $52. Momentum got the best of it though, and shares came back to earth. Currently trading below $20, it’s the lowest level since — you guessed it — 2013.
Why did investors love Under Armour so much? The athletic apparel maker continuously posted 20%-plus revenue growth. Even without profits, this is an impressive feat. But the last few quarters haven’t been the same. Fourth-quarter sales grew just 12%, while first-quarter sales were even worse, growing just 6.7%. Making matters worse, UAA lost one cent per share last quarter as well.
It helps that Under Armour recently got into Kohl’s Corporation (NYSE:KSS) stores. While some question what this will do to margins, recent comments from KSS management suggest its UAA segment is doing better than previously thought. That could give Under Armour a much-needed boost — especially if it can get sales growth back into double digits.
UAA may be near a bottom, down 32% on the year and 48% over the past 12 months. With this severe a beatdown, a short-term bottom could be near. While that may be true, I won’t be the one to peek through the gauntlet to find out.
Sports Stocks to Sell: Lululemon Athletica (LULU)
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How It’s Faring: Down for the Count
Lululemon Athletica Inc. (NASDAQ:LULU) looked like it had it all figured out. Sales were on the rise and earnings were cruising higher. Shares quickly rallied 22% in 2016.
2017 has been a different story, with shares down 26%. What went wrong? Shares dove 24% in one day when Lululemon report third-quarter earnings. Earnings came up short of analysts’ expectations, while revenues grew 12.2% and slightly beat estimates.
However, revenue guidance for next quarter came in far lower than Wall Street consensus, as did earnings. Full-year earnings were below consensus too, while the top end of guidance for Lululemon’s revenue only matched consensus estimates.
The swift decline in LULU stock put it back in line with its new, less-optimistic situation.
So what exactly is Lulu’s current situation? Management told investors that the wrong color mix led to a slow start to 2017. That’s all it took to get off to a slow start? Essentially yes. (Even Jim Harbaugh wearing Lululemon khakis wasn’t enough to help). And while sales are on the rebound during the current quarter, that much sensitivity is kind of shocking. Especially for a company that many considered defensible in the athleisure industry.
I’d feel more comfortable buying the stock at $45, where it found support twice in late 2015. Floating just under $50, Lululemon is sort of in No-Man’s land. Perhaps waiting for the next quarter is the most prudent way to handle LULU.
Sports Stocks to Buy: Dick’s Sporting Goods (DKS)
How It’s Faring: Keep on Fighting
Until earlier this month, Dicks Sporting Goods Inc (NYSE:DKS) was seemingly impervious to the dumpster fire in retail. Prior to early May, shares were up more than 20% over the past 12 months.
But DKS isn’t all that superior after all. On May 16, earnings were in line, while revenues came in below expectations. Guidance came up short and comp-store sales of 2.4% came in below estimates of 3.6%. Making matters worse? Oh yeah, that little accounting error it disclosed on May 12. Or as management says, a “computational error.”
The stock is down a casual 17% this month and 20% in 2017. On the plus side, if we can call it that, shares are basically flat over the past year.
So where do we go from here? Dick’s is a reliable company with solid management. That’s why its accounting issue came as such a surprise. It’s understandable why some investors feel that now is the time to buy. DKS is one of the few retailers that’s still growing. With baseball, summer activities and fall sports all acting as catalysts over the next four to six months, DKS is entering an attractive stretch of time.
Analysts expect 18.3% earnings growth this year and 8.7% growth in 2018. So paying just 10x earnings is dirt cheap for DKS. The problem is accounting. If it’s no big deal, shares will surely rally. But if further controversy is uncovered, DKS stock could be in more pain.
As a result, Dicks is a no-touch for me even though the business is doing well. For buyers, support sits nearby around $38 to $40.
Sports Stocks to Sell: Finish Line (FINL)
How It’s Faring: Down for the Count
DKS trading at 10x earnings may look like even more of a buy compared to Finish Line Inc (NASDAQ:FINL). FINL trades at 11x earnings and is expected to grow earnings 8.5% this year and 11.3% next year.
Expected sales growth of 2.6% for 2017 and 0.5% in 2018 is nothing to write home about though. And that’s if Finish Line is even able to hit those metrics.
FINL stock is down 25% on the year and 19% over the past 12 months. Shares are down more than 40% from its December highs. Last quarter, sales declined year-over-year and earnings widely missed consensus expectations. Sub-1% comps were low and margins fell as well.
So what’s to like? Honestly, the most exciting thing is that the stock is down big and expectations are now quite low. On the plus side, FINL yields 3.1%. But given Foot Locker’s 2.1% yield, superior growth and similar valuation, I’d rather own the latter.
Foot Locker gets the premiere shoes from Nike and others, while Finish Line often ends up with shoemakers’ second-tier products. When push comes to shove it’s easy: Foot Locker is better than Finish Line.
Even though the stock performances may set up FINL to have more upside, I like to bet on businesses. In this case, that bet falls on FL.
Sports Stocks to Buy: Big 5 Sporting Goods
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How It’s Faring: Keep on Fighting
Big 5 Sporting Goods Corporation (NASDAQ:BGFV) is down 20% in 2017. However, shares are still up 63% over the past 12 months. So what’s going on?
BGFV trades at 10.9x times forward earnings, which are expected to grow 44% in 2017 to $1.18 per share. In 2018, analysts expect growth of 7.6% to $1.27 per share and 15% annual growth after that. Admittedly, in the current state of retail, it’s hard to trust forward estimates that far into the future.
But Big 5 has got it going on. As if the earnings growth weren’t enough, the stock also yields 4.5%. And while BGFV stock is down notably on the year, it’s down even more from the highs. A 50% rally from current levels would only put BGFV back to its 52-week highs.
The stock is nearing oversold territory, as indicated by the orange rectangles on the chart. Additionally, downward momentum should be nearing a bottom. This is highlighted by the pink line at the bottom of the chart measuring BGFV’s MACD.
Finally — and perhaps the most compelling — is the teal line of support at $13. This significant level has acted as both support and resistance over the past two years. Investors willing to give BGFV a shot could use a price near this level for their stop-loss. It ensures minimal risk and big potential reward.
Short interest is north of 40% as well, meaning a short squeeze could drive shares higher. Certainly there are long-term concerns for BGFV, but a short-term rally isn’t off the table.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a long position in NKE.
