We came across a bullish thesis on Academy Sports and Outdoors, Inc. (ASO) on Safe Harbor Stocks’ Substack by Kristopher Rymer. In this article, we will summarize the bulls’ thesis on ASO. Academy Sports and Outdoors, Inc. (ASO)’s share was trading at $55.56 as of Jan 21st. ASO’s trailing and forward P/E were 9.18 and 8.47 respectively according to Yahoo Finance.
A hiker in a forest with a backpack of outdoor equipment highlighting the company’s lifestyle products.
Academy Sports + Outdoors (ASO) presents a compelling investment case within the sporting goods retail sector, distinguished by its value-oriented approach, strong financial metrics, and significant growth potential. Despite operating in the shadow of larger competitors like Dick’s Sporting Goods (DKS), ASO trades at a steep discount, currently valued at roughly 50% of DKS’s next twelve months (NTM) P/E ratio. This disparity highlights a clear opportunity for investors to capitalize on ASO’s untapped potential. With a current NTM P/E of around 8x compared to DKS’s 16x, ASO offers exceptional value, particularly given its robust operational performance and ability to compound shareholder value through share repurchases at highly accretive rates.
ASO’s growth strategy centers on geographic expansion and disciplined capital allocation. The company operates 298 stores, primarily concentrated in the South and Midwest, leaving substantial room for expansion into underserved regions. ASO plans to open 20–25 new stores annually, leveraging its proven new-store economics that achieve EBITDA profitability in the first year and a stabilized ROIC of 40% within five years. This underscores the scalability of its business model, with a long-term revenue goal of $10 billion, up from the current ~$6 billion. In contrast to DKS’s mature footprint, ASO’s relatively small store base serves only 20% of U.S. consumers within a 10-mile radius, compared to DKS’s 60%, offering a clear runway for growth.
Operationally, ASO demonstrates superior efficiency, boasting sales per square foot (SPSF) of $313, slightly ahead of DKS’s $304. The company’s e-commerce integration also stands out, with approximately 75% of online orders fulfilled through its stores, optimizing inventory utilization and reducing delivery costs. While ASO has faced headwinds from post-pandemic demand normalization, including 11 consecutive quarters of negative comparable sales growth, these challenges are transitory. The company’s focus on outdoor and recreational categories positions it well for a recovery, especially as consumer spending patterns stabilize.
Academy Sports + Outdoors (ASO), with its significantly lower valuation and higher free cash flow yield, seems interesting compared to peers. Its management has effectively managed operating leverage and margins, demonstrating resilience amidst recent sales challenges while expanding the store footprint. With comparable sales poised for recovery, ASO’s disciplined growth strategy and operational efficiency could drive substantial upside. A re-rating to an 11x P/E, paired with resumed sales growth, has the potential to double the stock price, supported by accretive new store development and robust buybacks. The market’s current undervaluation of ASO relative to its strong fundamentals and growth potential offers a unique opportunity for long-term investors. With a free cash flow yield exceeding 10% and significant room for geographic expansion, ASO is a high-quality retailer poised for growth, delivering attractive returns on invested capital and substantial shareholder value through consistent execution.
Academy Sports and Outdoors, Inc. (ASO) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 25 hedge fund portfolios held ASO at the end of the third quarter which was 28 in the previous quarter. While we acknowledge the risk and potential of ASO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ASO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.