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Hibbett Sports - Stay Far, Far Away

Nov. 02, 2017 3:30 PM ETHibbett, Inc. (HIBB)BGFV, DKS, FL, XRT21 Comments
Greystone Capital profile picture
Greystone Capital


  • Shares of Hibbett Sports trade at a discount to peers from an EV/EBIT, P/E, and P/FCF standpoint. However, the discount is warranted.
  • Both near and long-term outlook appear negative for the company, and management is struggling to respond to the changing retail environment.
  • The changing retail landscape will prove to be disastrous for the small-town brick and mortar business. Shares have room to drop from here.
  • Price: $12.85, P/E: 6.3, TEV: $211.8m, Shares outstanding: 20.3m, EV/EBIT: 2.45 TTM.

Description of the potential opportunity

Hibbett Sports (NASDAQ:HIBB) represents a value opportunity in the form of a small-town sporting goods retailer whose share price has plummeted due to declining comps and overall fear surrounding the retail sector.

Despite a recent uptick, the SPDR S&P Retail ETF (XRT) (which holds HIBB, Dick's Sporting Goods (DKS) and Foot Locker (FL) among others), has taken a decent nosedive over the past year due to skepticism surrounding brick and mortar stores being able to compete with quicker, cheaper, and more convenient online and mobile options such as Amazon (AMZN).

Source: Yahoo Finance

As many of the companies in the index suffer continuous sales declines, they have been forced to lower prices via promotions/discounts to move inventory, which has resulted in depressed margins, which has led to lower SSS numbers, which forces them to reduce prices even further to attract customers and move inventory - and over a period of time, these companies are caught in a downward spiral that shows no signs of a near term slowdown.

Companies like Hibbett, Dick's Sporting Goods, Foot Locker, and Finish Line (FINL) have seen their share prices decline anywhere from 40-60% YTD as consumer preferences for footwear and apparel change (and what they're willing to pay), mall visits slow down, and mobile shopping becomes more prevalent.

As a result, plenty of money has since moved out of the sector, taking good companies with strong operating histories and solid balance sheets along with it. Unless one has been living under a rock, this is hardly new information, yet seems to be representative of the rapidly changing retail landscape.

That brings us to Hibbett Sports. Because of the fear and uncertainty regarding this new retail environment, Hibbett stock price has been hammered starting in December of 2016, down nearly 65% on a 52-week

This article was written by

Greystone Capital profile picture
Greystone Capital is a long only, equity focused Registered Investment Adviser located in West Chester, PA. The firm utilizes a fundamental research process focused on identifying mispriced small and microcap securities in order to build a concentrated portfolio of high conviction investments. It’s our belief that the best investment results can be achieved by aligning interests. Greystone aims to be different from the majority of investment vehicles and large funds by providing full transparency into what we own and why we own it, and always being invested alongside clients. We strive to create value, not extract it. Greystone’s investment process is centered around patience, good decision making, and daily incremental improvement. Our aim is to compound client’s investment capital at the highest possible rates of return over long periods of time. To do that, client portfolios are managed by taking concentrated positions in small companies that are generally under-followed, misunderstood, and can be too small for large funds or passive investment vehicles to own, creating the potential for mispricings. Viewing stocks as ownership shares in businesses, we seek to own these companies for years, or until the mispricings correct. We believe this approach, executed well over long periods of time, can provide a path to stock market out performance.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

We do not short stocks, but if that was part of our strategy, Hibbett would be a good candidate.

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