I still believe US brick-and-mortar retail stocks have more downside to come. And so I’m not particularly interested in Dicks Sporting Goods Inc (NYSE:DKS). But for investors who see the sector differently, DKS stock very well could be an intriguing play.

From here, Dick’s disappointing guidance for fiscal 2018 (ending January 2019) highlights the challenges facing its space. DKS management is projecting flat same-store sales, pressured margins and declining profits.

That’s exactly the outcome so many retailers have faced in the last few years. And it’s what I believe the next few years will look like for retailers as well.

But if I’m wrong, then DKS stock probably looks attractive. If brick-and-mortar retail isn’t dead; if 2018 just is a “reset year” and if Dick’s can benefit from the huge number of closures elsewhere in the space beyond that, there’s a real bull case for DKS at these levels.

In fact, I’d argue DKS is one of the best plays in retail — if retail is a space worth investing in. That’s a big “if” right now, though.

The Case Against Retail and DKS Stock

The most obvious reason to be cautious, if not outright bearish, toward DKS stock is that growth has reversed. In the third quarter, for instance, Dick’s did grow revenue about 7%, but same-store sales declined almost 1% and non-GAAP earnings per share fell sharply.

For full-year fiscal 2017, Dick’s expects non-GAAP EPS of $2.92-$3.04 against $3.12 the year before. It also guided for fiscal 2018 EPS to fall as much as 20%, due to investments in the e-commerce business, gross margin pressure and flat sales. Fundamentally, anyway, this looks like a declining business.

And the declines are following the pattern seen elsewhere in the sector. Investing in an omnichannel model, as Dick’s is doing in 2017 and 2018, hurts margins. It’s expensive to operate a fleet of physical stores and have the e-commerce fulfillment capabilities that can compete with Amazon.com, Inc. (NASDAQ:AMZN) and other online-only plays. The ability to shop online puts ever-present pressure on pricing. That impacts gross margins. And if same-store sales aren’t growing at least 2%, they’re not enough to leverage annual increases in rent and labor expense.

That broad pattern is exactly what is playing out for Dick’s. Comps are flat and margins are down — and that means lower profits. Given $300 million in debt — and over $3 billion in committed operating leases — lower profits mean a steadily lower share price, and conceivably a 6-7 EPS multiple. (Note that GameStop Corp. (NYSE:GME) trades at less than 5 times earnings.)

That type of multiple would value DKS stock at $18 — about 40% downside. And it’s likely in that range that short-sellers, who have sold short over 13% of the DKS float, are valuing Dick’s Sporting Goods stock.

The Case for Dick’s

Of course, that case only holds if the current trends aren’t reversible. And there are some reasons to believe that is the case for DKS.

There is an obvious company for Dick’s to emulate — Best Buy Co Inc (NYSE:BBY). Best Buy numbers looked pretty rough for some time — and its space was a disaster, just like sporting goods has been. As chains like Circuit City and RadioShack, among many others, went bankrupt, Best Buy wound up as basically the last man standing. And by creating a true omnichannel offering for customers, it’s managed to avoid the “showroom effect” and compete with Amazon, eBay Inc (NASDAQ:EBAY), and Overstock.com Inc (NASDAQ:OSTK).

Like Best Buy, Dick’s should benefit from bankruptcies of The Sports Authority (some of whose stores Dick’s acquired), Eastern Outfitters, Midwestern chain MC sports and others. Bears point out that it hasn’t yet — which is true. But those bankruptcies also provided a short-term disruption to the space, flooding the market with clearance inventory that is still being worked through. There’s plenty of time for Dick’s to jump-start growth and its recent policy changes surrounding firearms should have limited impact on revenue.

And like Best Buy, the omnichannel investments being made now could pay off down the line. Add to that tax reform help — though benefits may be “competed away” as rivals simply lower prices further — and if Dick’s can just stabilize its business, there’s reasonable upside. Tax-normalized EPS in FY18 could near $3; a conservative 12-14 multiple values the stock in the high $30s or low $40s, 20-35% upside from current levels. A 2.8% dividend yield, after Dick’s raised its dividend 32%, adds to total return as well.

On the Sidelines — For Now

To be honest, I’m not quite ready to make that bull case. But I’m not interested in shorting DKS either. The company does have a path to upside, and there are a number of better short ideas in the retail space right now.

But Dick’s has a lot of work to do — and a lot of headwinds to navigate in the near term. I question whether the sporting goods industry, overall, is going to grow much, given participation challenges among American youth. And I question whether any brick-and-mortar retailer really can win, long-term, in the new environment.

If one can, it very well may be Dick’s — and I’m open to changing my mind if the company can show some progress.

As of this writing, Vince Martin has no position in any securities mentioned.