Beaten-down bargain stocks, anyone?

Dick’s Sporting Goods shares are taking a beating, but don’t count the retailer out.

In fact, you might want to pay closer attention…

Perhaps in some bizarro world of investing today, retail investors should thank Wal-Mart (NYSE:WMT). We’ll get to Dick’s in a moment.

The Bentonville, Arkansas giant signaled well ahead of its third quarter (September 30) earnings release earlier this week that the remainder of 2015 and early into 2016 would be difficult.

Indeed, Wal-Mart let investors know it expected to see a 12% drop in profits for FY 2016.

The stock got creamed, of course—yet after its release of earnings that managed to actually please analysts, WMT stock has jumped up over 5% in the last five trading days.

The lesson? You might get punished for being honest, but perhaps there’s some longer-term good that comes from the acknowledgement.

Which brings us to Dick’s Sporting Goods (NYSE:DKS), which just got thumped for… well, being honest.

Maybe investors will learn a bit of a lesson from Wal-Mart and apply it to Dick’s…

Beaten-down bargain stocks, anyone? DKS Earnings Under Siege

Shares of Dick’s were already falling in tandem with the rest of the retail sector. And that was before it announced Q3 (October 31) earnings of 45 cents per share that missed expectations by 1 cent per share, on revenues of $1.64 billion compared to the $1.66 billion expected.

Even worse, Q4 (January 31, 2016) numbers were telegraphed as coming in well below analyst hopes. At $1.10 to $1.25 per share, DKS will miss the $1.42 estimates easily, and its full-year hopes of $3.13 to $3.21 are all but a pipe dream.

As we saw with WMT, DKS got clobbered, falling over 22% (dangerously close to a 52-week low) on Tuesday morning after making the announcement.

And yet, DKS ‘recovered’ to close down just over 9%, and indeed, as this is written, DKS stock is slowly, ever so slowly, heading north again.

Beaten-down bargain stocks, anyone? DKS Is Still a Viable Sporting Goods Player

As with Wal-Mart, perhaps the earnings honesty punishment doesn’t quite fit the crime.

Dick’s is actually in pretty good shape considering, well, retail sucks.

In fact, theStreet has Dick’s rated as a “buy”, citing its last two consecutive (actually, its three) years of annual earnings per share increases, and increasing operating cash flows on a quarter-over-quarter (albeit Q2) basis.

In fact, Dick’s is quite the cash machine and efficient operator: Fiscal year 2014 saw a free cash flow (net income + non-cash items – CAPEX) of $144 million, better than 2013’s $142.3 million and 2012’s $120 million.

Want more? Dick’s boasts a 10.47% return on asset and 20.33% return on equity.

Combine that with a fairly strong cash position, and you can see why DKS managed to reward its stockholders with a quarterly dividend of 13.75 cents per share, all the while repurchasing $150 million of its shares.

All of which leads to the belief that DKS is a pretty darn good bargain right now…

Beaten-down bargain stocks, anyone? DKS Stock is a Long-Term Deal

After the earnings warning announcement, DKS is trading for just over 12x trailing earnings, and at around 10.5x forward earnings.

Competitor Cabela’s (NYSE:CAB) is up around 15x trailing earnings for no strong particular reason, since it also had a bad quarter and guided analysts further south on future profits, too.

Dick’s has been spending money on growing its “Omni-channel Development” strategy, which includes opening new stores and improving and enhancing its online shopping model.

At the same time, it’s looking to right-size itself to market changes, including its decision to scale back a prior focus on golf equipment and attire.

Changes to the golfing model accounted for charges of nearly $5.1 million in the quarter, including severance charges and write-downs against excess golf inventory.

So Dick’s is clearly working to clear out the underbrush while managing what works.

In fact, it’s a darn good strategy.

The lesson? While Dick’s is certainly not Wal-Mart, the lesson here may just be the same: hang in for the long term for your rewards.

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