Hibbett, the Dick’s Sporting Goods of the Boondocks, Growing Like a Weed

Dick’s Sporting Goods (DKS) has been a very good post-recession investment, with shares up more than 80% for those who picked it out in its smaller, pre-dividend paying state two years ago. But as Dick’s grows to a size that makes double-digit sales and earnings gains harder to maintain, growth investors might consider switching to Dick’s far less popular country cousin, Hibbett Sports (HIBB).

Hibbett, which operates about 800 small, out-of-the way sporting goods stores, has been quietly mimicking Dick’s success for a couple of years now. In fact, Hibbett’s share price more than doubled (up 140%) during Dick’s 80% rise.

Hibbett Sports Stock Chart by YCharts

With a market cap of $1.25 billion and revenues of $715.17 million in the past four quarters, Hibbett takes a slightly different approach to retailing than Dick’s big-city megastores. Hibbett operates mainly out of strip centers in stores next to Wal-Marts (WMT), in smallish suburbs where it often has the monopoly on name-brand sports gear like Under Armour (UA) and North Face. About 25% of Hibbett outlets are in malls of similar demographics, but the growth will be with Wal-Mart, market cap of $220 billion and about 3,850 U.S. stores; nice outfit to piggyback on. The average size of a Hibbitt store is about one-tenth the size of a Dick’s Sporting Goods.

For investors, however, Hibbett looks a lot like just a smaller version of the $4.68 billion-market-cap Dick’s. Both companies have been blessed by consumers’ inexplicable appetite for sporting goods lately even while they gave up other discretionary buying, one of the mysteries of the consumer confidence chart. Both companies boosted earnings forecasts recently after surprising analysts with strong profits.

Hibbett Sports Net Income TTM Chart by YCharts

Both companies have been able to greatly increase profit margins as they have grown in recent years. And both companies are praised for nice cash reserves. Neither company has more than marginal debt levels.

Hibbett Sports Gross Profit TTM Chart by YCharts

Hibbett Sports Cash and ST Investments Chart by YCharts

Dick’s, which recently crossed the $5 billion mark in annual revenues, set itself apart from Hibbett last month by announcing its first ever dividend. It promises to establish a regular quarterly dividend some time next year.

While dividends are always welcome, sometimes they’re bones thrown to shareholders who are getting impatient with the pace of growth. And there are signs that investors are cooling on Dick’s even though the company doesn’t appear to have done anything to warrant disappointment. Analysts project almost identical earnings growth for Dick’s and Hibbett (EPS up 16% in 2012), but only Hibbett shares have been rising lately. Shares of Dick’s, which typically trade at a premium to Hibbett, are a little less expensive now that Hibbett is trading at a 52-week high.

Dick's Sporting Goods PE Ratio Chart by YCharts

Ironically, Dick’s weakness may simply be the result of its own success. Having performed like a growth company for the better part of two years, it’s now so large that doubts about its ability to continue making noticeable gains are setting in. That has made Hibbett, the small-cap company that seems to be following the same path, look that much more attractive.

Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.