When Stephen Mandel makes a big bet, it’s worth finding out why. He’s the President and portfolio manager at Lone Pine Capital, a $10 billion fund based in Greenwich, Connecticut.
As we analyzed his portfolio, it became clear why he’s running a billion dollar fund – just about every stock in his portfolio is undervalued on a discounted cash flow forecast basis.
But one stood out to us, not only because it ranked among the top 3 most undervalued holdings in his portfolio, but also because he made a big bet on it. What company is it? Dick’s Sporting Goods.
- Stephen Mandel, the portfolio manager at Lone Pine Capital, made a big bet on Dick’s Sporting Goods, a company that is undervalued by 31.2%.
- Dick’s has seen a 50% spike in revenues since 2019, while operating income has increased by approximately 200% from $447 million in 2019 to $1.49 billion in 2022.
- The growing demand for fitness and sports equipment, a diverse range of products, and the company’s investments in e-commerce capabilities present tailwinds for the firm.
Why Did Stephen Buy Dick’s?
Dick’s has a lot going for it, and financial performance is just the tip of the iceberg. Since the turn of the decade, revenues have risen from $8.4 billion to $12.3 billion. A 50% pop in revenues is good but EBIT is where the company has shone brightest. It’s up around 200% from $447 million in 2019 to $1.49 billion in 2022.
Impressively, the company has managed to grow revenues and operating income without growing store count by much at all. We calculated 726 stores in 2019, 728 in 2020 and 730 in 2021. Yet top line revenues kept growing throughout this period, and management was efficient in converting those sales into profits.
In spite of the share price gaining over 300% over the past 5 years, it still appears undervalued by our calculations with 31.2% upside to fair value of $181 per share and it pays a 2.89% dividend annually in the meantime.
Will Dick’s Keep Growing?
Looking at the financials in the rearview mirror is helpful but it’s equally valuable to know what could sustain healthy figures. A growing demand for fitness and sports equipment alongside a diverse range of products offered by Dick’s are tailwinds for the firm. But e-commerce ranks among the biggest drivers.
We see a significant opportunity for Dick’s Sporting Goods to expand its online presence and reach a wider audience. The company has already invested in its e-commerce capabilities, and this may help to drive growth and profitability in the future.
Another reason Stephen Mandel likely purchased Dick’s is that the company had an aggressive share repurchase scheme in operation, buying back 7% of its outstanding shares for a cost of $500 million since December, 2021. While that appears to be complete now, the net benefit to Mandell has already accrued.
Collectively, these reasons explain why Mandel bet over 5% of his fund on this one sporting goods company. That bet represents over $500 million and suggests he has enormous conviction in his investment thesis. Will he be right? History says his track record buying Dick’s Sporting Goods has already been proven accurate.