Have to say that this is one of the best small cap retail business.
Sports retail business just like Dicks, big 5 sports
Some highlights off the top of my head
- Extroadinarily high ROE of 25% and above. Consistent as well.
- Good steady margins
- Good FCF growth
- Tight inventory control
- Strong balance sheet
- No accrual build ups
- No debt
- Good growth in bad economies. Earnings revised up in 2011.
Strategic advantages
- shadows WMT. Whereve WMT is, HIBB tries to open a store within the vacinity PROVIDED that the demographic is their target
- won't expand into bigger cities. Takes advantage of smaller population markets where bigger competitors wont do business
- has relationships with local schools to supply them equipment and gear
- customizes merchandise to match the target market. e.g. Shops in Alabama will have a lot of Alabama football team gear during football season while another store in texas takes advantage of the Texas rangers world series games.
- HIBB trains their employee to be sales professionals instead of just regular store helpers. They sell more technical sports gear which requires better explanations.
Valuation
- Reverse valuation show that the current stock price is expecting about 15% growth from the company. Too high for me.
- Fair value is around current price of $40-50. Not much margin of safety.
- Currently trading at much higher multiples than competitors. This could easily revert to the mean as HIBB is operating at max margins at the moment.
Risks
- HIBB purchases majority of products from Nike. If their relationship fails, no more products to sell
- Retail business could turn down any minute
- Customized products means that they could be missing or be slow to a bigger trend
- They have 800 stores. How many smaller markets are there that HIBB can take control of?
- Centralized distribution strategy. If the warehouse gets hit by a hurricane, company will suffer.
- Retail business has a lot to do with management and experience. But HIBB has been doing this with conservative smart growth and store openings.
Others
- Good company to work for
- No complaints from previous employees other than the pay was low. (glassdoor.com)
- Joel Greenblatt has been a recent buyer (small buyer)
- Insiders consistently selling at current prices. Sign that stock price is fairly valued?
- Executive chairman's salary and stock option is enormous.
Verdict
- Time to start buying around $30 ~ $35, or lower if opportunity is given.
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