DICK'S Sporting Goods, Inc.'s (NYSE:DKS) price-to-earnings (or "P/E") ratio of 12x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 33x are quite common.  Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.  

With earnings that are retreating more than the market's of late, DICK'S Sporting Goods has been very sluggish.   It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E.  If you still like the company, you'd want its earnings trajectory to turn around before making any decisions.  If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.    

See our latest analysis for DICK'S Sporting Goods

NYSE:DKS Price to Earnings Ratio vs Industry December 18th 2023

Keen to find out how analysts think DICK'S Sporting Goods' future stacks up against the industry? In that case, our free report is a great place to start.

How Is DICK'S Sporting Goods' Growth Trending?  

DICK'S Sporting Goods' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.  

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 20%.   However, a few very strong years before that means that it was still able to grow EPS by an impressive 166% in total over the last three years.  So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.  

Looking ahead now, EPS is anticipated to climb by 7.9% per annum during the coming three years according to the analysts following the company.  Meanwhile, the rest of the market is forecast to expand by 12% each year, which is noticeably more attractive.

With this information, we can see why DICK'S Sporting Goods is trading at a P/E lower than the market.  It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.  

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of DICK'S Sporting Goods' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E.  At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio.  Unless these conditions improve, they will continue to form a barrier for the share price around these levels.    

We don't want to rain on the parade too much, but we did also find 1 warning sign for DICK'S Sporting Goods that you need to be mindful of.  

If these risks are making you reconsider your opinion on DICK'S Sporting Goods, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.