Sporty Returns
In this edition of the Smart Investor newsletter, we examine the stock of the largest sporting goods retailer in the U.S. This week, we are not selling any stocks from the Portfolio. But first, let’s dive into the latest Portfolio news and updates.
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Portfolio Updates
❖ Salesforce (CRM) posted its quarterly results on December 3rd after hours. The company reported strong results for its fiscal Q3 2025, with revenue reaching $9.44 billion, up 8% year-over-year and ahead of estimates. Importantly, subscription revenues also beat estimates, while non-GAAP operating margin rose to 33.1% and operating cash flow rose by 29% YoY. Looking ahead, Salesforce raised its full fiscal-year revenue guidance to $37.8-38 billion, representing 8-9% growth, and increased its operating cash flow growth guidance to 24-26% YoY. The annual revenue is expected to be lifted by the strong demand for CRM’s new Agentforce technology. Investors took a slight miss on EPS in FQ3 in stride, sending shares higher, as the lower-than-expected earnings per share were the result of investment losses rather than operational performance.
❖ Interactive Brokers (IBKR) released its monthly performance metrics for November. Key updates include a year-on-year surge of 74% in Daily Average Revenue Trades (DARTs), as well as a 42% growth in Ending Client Equity (overall assets held by clients), and a 29% increase in the number of Client Accounts. Robust growth in these and other metrics highlight IBKR’s growth, client engagement, and financial strength.
❖ The Biden Administration announced new export controls in an effort to curtail China’s ability to produce advanced semiconductors. The new restrictions are set to prevent both U.S. producers and global firms that use American technology from exporting critical semiconductor manufacturing tools to China. U.S. regulators have now expanded controls to advanced chipmaking tools that were not previously targeted, as well as to advanced high-bandwidth memory (HBM), a critical component for AI chips. In addition, the U.S. Commerce Department added 140 Chinese entities, including chip and chip equipment manufacturers, to a blacklist that requires their Western suppliers to apply for export licenses. Shares of the U.S. companies affected by the restrictions, such as Lam Research, KLA Corp., and Applied Materials (AMAT), rose on the news as the additional restrictions are seen as less severe than feared.
❖ ASML Holding (ASML) addressed updated U.S. export control regulations restricting semiconductor technology exports, including metrology and software, and expanding restrictions on China-based fabs. No material impact is expected on 2024 business and 2025 sales projections remain aligned with prior guidance, as China contributing around 20% of total net sales. Long-term industry demand and 2030 sales scenarios were also unaffected, as ASML committed to complying with all applicable regulations.
❖ The U.S. online sales on Thanksgiving and Black Friday reached their all-time highs this year, with online shopping on Cyber Monday also expected to hit a record. MasterCard data shows that online retail sales in the period jumped 14.6%, while in-store sales rose slightly from last year. The strong online consumer demand benefits retailers with significant e-commerce presence, such as Amazon (AMZN).
❖ Amazon (AMZN) is hosting an Amazon Web Services’ re:Invent conference this week, where AWS CEO Matt Garman is expected to reveal the company’s updates on AI and computing efforts. AWS is expected to share insights into its generative AI revenue, which has reportedly reached “multiple billions.” The company has already announced new generative AI enhancements for Amazon Connect and its data center infrastructure, as well as its plans to establish Data Upload Centers, i.e., physical locations where customers can directly upload data to the AWS cloud, facilitating easier data migration. Moreover, Amazon has doubled its investment in AI startup Anthropic to $8 billion, strengthening AWS’s position in the AI sector.
❖ Goldman Sachs resumed coverage of Diamondback Energy (FANG) with a Buy rating and a price target implying 28% upside to current levels. According to GS, the recently closed merger with Endeavor Energy presents significant room for incremental improvements in capital efficiency at scale. In addition, Goldman Sachs said that Diamondback employs a prudent capital allocation strategy, which is expected to continue creating shareholder value.
❖ Several analyst have opined on Dell Technologies (DELL) following its fiscal Q3 2025 report. Analysts from firms such as Morgan Stanley, Bank of America Securities, Argus Research, and Evercore ISI reiterated their “Buy” ratings on Dell, while Barclays and TD Cowen maintained a “Hold” rating. Morgan Stanley said that the company outperformed most of the key metrics, adding that it would be a buyer of the stock post-earnings. Meanwhile, Melius Research analysts raised their price target on DELL, saying that weakness in the firm’s fourth-quarter outlook is “a near-term blip” as it expects to continue seeing strong growth in AI-related solutions.
❖ Last week, the Federal Trade Commission opened a broad antitrust probe into Microsoft (MSFT), aiming to investigate everything from the company’s cloud computing business to its artificial intelligence (AI) products. Analysts seem to be unphased by the probe, saying it will have a limited impact amid a potential change in leadership at the agency as the FTC Chairwoman Lina Khan is set to leave with the Biden administration. Wedbush analysts called the probe “much more bark than bite,” saying that “the dark days for tech with Lina Khan at the FTC appear numbered now with a Trump White House.” The current FTC head has aggressively pursued antitrust actions against tech giants, including Alphabet (GOOGL), Apple, and now Microsoft. Analysts now predict major shifts in policy regarding the Big Tech, with much less scrutiny and a lighter hand on regulation.
❖ Oracle (ORCL) stock is on pace for its best year since 1999, having risen by almost 76% year-to-date. The company’s cloud and AI-fueled turnaround is leading to robust revenue growth, bolstering operating income and overall profitability. Oracle’s strategic partnerships with the cloud leaders AWS, Azure, and Google cloud are helping to expand its customer base, supporting further revenue surge. Meanwhile, Oracle’s substantial investments in AI infrastructure have positioned it as a cost-effective alternative to competitors, leading to increased demand for its cloud services.
❖ Arista Networks (ANET) performed a 4-for-1 stock split, with the stock beginning to trade at its split-adjusted price today, December 4th.
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Portfolio Stocks Under Review
❖ Applied Materials (AMAT) remains under review for now, although the stock’s recent surge following milder-than-feared restrictions on sales to China may suggest that investor sentiment has turned positive. Still, we will watch it closely for a bit longer to see whether this is indeed the case.
As a reminder, the key reasons for placing AMAT in the “review” bracket were its exposure to China, as well as the trends in its trailing edge offerings in China and elsewhere, as the current demand strength may not be sustainable, specifically in automotive and consumer electronics areas.
Taking into account the continued short-term headwinds on one hand and AMAT’s strong market position, technological edge, and the ability to capitalize on future semiconductor advancements on the other, we are leaving the stock under review until further notice.
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❖ Adobe (ADBE) remains under review despite a strong performance in the past month following almost a year of trading sideways. The company’s FQ3 results and guidance were met with hesitation as investors were concerned about signs of decelerating growth and worried about Adobe’s competitiveness in the rapidly evolving AI-powered software market.
However, recent developments suggest that Adobe stock may be poised for a strong rebound. In particular, the company has sustained double-digit growth while making remarkable progress in enriching its AI capabilities. ADBE has merged AI into its software across platforms, leading to customer enthusiasm and drawing praise from analysts, who view Adobe’s approach of adding AI features to its offerings as a path to fortify the company’s market position while streamlining its AI monetization process.
Wall Street brokerages rate ADBE as a “Buy,” with an average price target implying a ~20% upside over the next 12 months. According to Goldman Sachs, Bank of America, and others, Generative AI tools will be a meaningful component to Adobe’s revenue growth. However, the jury is still out on ADBE, and these assumptions will be put to the test on December 11th when ADBE reports its FQ4 earnings.
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Portfolio Earnings and Dividend Calendar
❖ The Q3 2024 earnings season is winding down, but several Smart Portfolio holdings are still scheduled to release their quarterly results in the next few weeks. Thus, Synopsys (SNPS) is scheduled to post its quarterly results today after hours.
❖ The ex-dividend date for Alphabet (GOOGL) is December 9th.
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New Buy: DICK’S Sporting Goods, Inc. (DKS)
DICK’S Sporting Goods, Inc., together with its subsidiaries, operates as an omnichannel sporting goods store chain. Headquartered in Pittsburgh, Pennsylvania, the company serves athletes and outdoor enthusiasts in more than 850 physical stores across the country, and also ships to international customers through online shopping platforms.
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The House of Sports
Founded as a fishing goods store in 1948, the company has increased its offerings and geographical presence throughout the years, both through internal effort and via acquisitions. By 1996, the company operated over 50 stores, each generating approximately $10 million in sales.
In the 2000s and 2010s, the U.S. sports retail industry underwent rapid consolidation, with several companies undergoing mergers or outright liquidations, which allowed DICK’S Sporting Goods to capture a larger share of the market. By 2016, after decades of strategic acquisitions and organic growth, DICK’S became the largest U.S. sporting goods retailer.
In 2004, DICK’S acquired Galyan’s Trading Company, adding 47 stores and enhancing its market presence. The company continued to grow through strategic acquisitions, including Golf Galaxy in 2006 and Chick’s Sporting Goods in 2007. In February 2023, DKS acquired Moosejaw from Walmart to enhance its outdoor recreation offerings. However, by September 2023, DICK’S announced the closure of all but three Moosejaw stores, integrating the brand’s operations into its existing structure. These acquisitions diversified its offerings and expanded its geographic reach.
Additionally, over the past decade DKS has implemented several internal growth initiatives to enhance customer engagement and expand its market presence. Thus, in 2016 it acquired GameChanger, which grew into an AI-powered youth sports management platform, supporting over a million teams and 7 million games annually.
In 2021, DICK’S launched Public Lands, a retail concept focusing on outdoor gear and conservation efforts, converting several existing stores into Public Lands locations. In the same year, DKS launched the House of Sport Concept, a line of experiential stores that feature interactive elements like climbing walls, sports fields, and batting cages, aiming to create immersive shopping experiences.
In addition to branded goods, DICK’S has expanded its private label offerings to provide exclusive products that cater to customer preferences and broaden its profit margins. The company has also effectively integrated its online and in-store experiences, enhancing customer engagement and building loyalty.
Besides its namesake stores, DICK’S Sporting Goods operates several specialty retail subsidiaries, including Golf Galaxy, Public Lands, Going Going Gone!, House of Sport, and Warehouse Sale stores. With a market cap of over $17 billion and annual revenues of $13 billion, DKS is the world’s fourth-largest sports retailer, ranking #335 on the Fortune 500 list.
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Fit and Healthy Finances
Despite the acquisitions and investments in physical and online expansion, DICK’S features rock-solid balance sheet with a net debt-to-equity ratio below 1% and short-term assets covering both its short- and long-term liabilities. It also displays near-perfect profitability and capital efficiency metrics, with ROE, ROA, and ROIC making the top 10% of its industry.
Although DKS’s gross margin is in line with the average for its industry, its effective operational strategies and cost management prowess have enabled it to significantly surpass its industry in terms of operating and net profit margins outperforming competitors in overall profitability. The company also maintains a robust capacity to generate cash from operations, providing flexibility for investments, debt reduction, and shareholder returns.
DICK’S Sporting Goods has achieved substantial growth in revenue and EPS over the past five fiscal years, with CAGRs of approximately 13.6% and 40.5%, respectively. The company’s results from the first three quarters and the full fiscal year 2024 projections suggest that this positive trend is continuing. This outlook is supported by the ongoing robust retail sales, with declining interest rates expected to add strength to American consumption.
In fiscal Q3 2024, DICK’S reported another strong quarter, surpassing analysts’ revenue and EPS estimates again – as it did in all quarters in the past years with a single exception in Q2 2023. Although the Non-GAAP EPS declined by about 3.5% year-over-year, this result was still better than expected. The decline was primarily due to an anticipated adverse impact of a calendar shift, which amounted to $0.35 per share.
It also should be noted that DKS’s GAAP EPS rose by 15% year-on-year in FQ3. The divergence between GAAP and non-GAAP net income during the quarter was primarily due to adjustments for non-recurring items such as business optimization charges and strategic investments in marketing, technology and talent.
In FQ3, DKS delivered year-to-date comparable sales growth of 4.7%, EBT margin of 11.8%, and earnings per diluted share of $10.43. Following these results, DICK’S raised its full fiscal year 2024 guidance for comparable sales growth to a range of 3.6-4.2%, up from 2.5-3.5% previously, and upped its full-year EPS estimate to a range of $13.65 to $13.95, up from $13.55 to $13.90 previously.
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Investing in Endurance
In its FQ3 earnings call, DICK’S Sporting Goods said that it plans to allocate approximately $800 million in net capital expenditures to support its growth initiatives and enhance its retail footprint. Thus, the company is expanding its presence in Texas, a key growth market, with new stores, marketing initiatives and infrastructure investments. In the past quarter, it kicked off construction of a distribution center in Fort Worth to enhance its omnichannel capabilities – a cornerstone of its long-term strategy – which is set to open in early 2026.
The sports retailer has been very successful with innovative store concepts, such as the House of Sport, which is uniquely designed to cater to both performance and lifestyle athletes. DKS plans to open an additional 15 House of Sport locations in 2025 with targets for 75 to 100 locations by 2027. Moreover, building on the success of the House of Sport concept, the company is transforming its existing stores into an innovative Field House format with experiential elements. Both House of Sport and Field House store formats have proven successful in driving high in-store engagement. DKS said it plans to open 20 Field House locations next year.
Additionally, DKS continues to expand its online presence, investing in enhancements of its apps and website. The digital offerings and engagement apps are invaluable in attracting youth athletes and life-style enthusiasts, with the youth sports technology market slated for sustained growth. By investing in digital innovation, ingenious brick-and-mortar concepts, and trendy brands along with quality private labels, the company is cementing its long-term position as the undisputed leader of the sports retail market.
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Quality Goods at Fair Price
DICK’S Sporting Goods began trading publicly on the NYSE under the ticker “DKS” in 2002. Over that time period, its market cap expanded from $300 million to the current $17+ billion. Despite its high capitalization and share liquidity, the company is still not a component of the S&P 500, instead trading within the S&P Midcap 400 index. Since the company is well-positioned for continued growth, it could only be a matter of time before it is added to the large-cap benchmark, which would further support stock performance.
Meanwhile, DKS’s stock has risen by over 50% in the past 12 months, strongly outperforming the S&P 500 despite a decline of over 11% from its August high. However, this decline has created a more attractive entry point, bringing valuations down to earth. Currently, DKS shares trade at a slight discount to the Consumer Discretionary sector’s average and come at the middle of the scale for U.S. Specialty Retail peers. TipRanks-scored top Wall Street analysts foresee an average upside of about 17.5% for the stock in the next 12 months.
DKS may well surpass these expectations, as its stock performance is supported by strategic buybacks. In December 2021, the company’s Board of Directors authorized a five-year share repurchase program of up to $2 billion. Under this authorization, DICK’S Sporting Goods has repurchased over $1 billion worth of shares in fiscal 2022 and 2023, adding another $170.3 million in buybacks in the first three quarters of fiscal 2024. In the past five years, the company has reduced its share count by more than 19%.
While these repurchases reflect DKS’s strong commitment to returning value to shareholders, dividends are also an integral part of its capital allocation strategy. DICK’S Sporting Goods has been paying dividends since 2011, increasing them annually since 2015. Dividend growth has been fast: in the past five years, annual payouts have increased at a CAGR of over 33%. The company’s current dividend yield of 2.1% is already significantly above the Consume Discretionary sector average and is projected to increase at a fast clip in the next several years.
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Investing Takeaway
We view DICK’S as one of the strongest retailers in terms of finances, operational delivery, and strategic management. The company’s robust profitability and cash generation enable it to invest in multiple growth-inducing strategies, while maintaining solid balance sheet and returning capital to investors through strategic buybacks and fast-growing dividends. Thanks to the ongoing investments in delivering superior omnichannel experiences and the ability to meet customer demand, DKS continues to gain market share and solidify its position as the leading U.S. sports retailer. We expect the company’s stock to maintain its long-term growth trajectory and believe that it will become a valuable addition to the Smart Investor Portfolio.
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Smart Investor’s Winners Club
The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Last week was mostly positive for Smart Investor stocks, and exclusive club’s ranks have expanded to include 17 stocks: GE, ANET, TPL, AVGO, EME, ORCL, TSM, HWM, PH, APH, ITT, IBKR, PNR, KKR, PYPL, AMAT, and CRM.
The first contender is now AMZN with 18.87% gain since we purchased it on September 11th. Will it close the gap, or will another stock outrun it to the finish line?
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
