Hibbett Stock Is Looking Pre-Pandemic Cheap Again

Hibbett Sports (HIBB) is an American-based sporting fashion and goods retailer with over a thousand stores in 32 states. I am bullish on the stock.

Digitalization and a Winning Business Model

According to Baird analysts Justin Kleber and Peter Benedict, “With structurally improved competitive dynamics (i.e., key brands reducing wholesale distribution points), ongoing business model enhancements, good visibility into inventory flow, and a sizable buyback authorization, we believe risk/reward looks too compelling to ignore.”

Since the start of the pandemic, Hibbett has spent a lot of time and money on digitalizing its supply chain to ensure more prompt up/downstream inventory flow. In addition, most retailers have started taking advantage of improved data analytics via machine learning processes. If Hibbett can continue leveraging its analytics with such techniques, it could well sustain its 89.9% year-over-year EBITDA growth.

Furthermore, the business’ secular growth strategy is proving to be a winner. Hibbett targets new hypergrowth areas to open stores while closing down stores where growth is dormant. Hibbett has a target of more than 1,500 stores in underserved areas, which could see it reach a cost-leadership scale never seen before in its domain.

Earnings and Valuation

In its third quarter, Hibbett achieved tremendous financial success, with same-store comparable sales rising by 13%, causing gross margins to surge by 36.3%. The company beat its revenue estimates by $23.07 million and exceeded its EPS target by $0.07.

The stock is undervalued and looks pre-COVID cheap. Hibbett’s P/E ratio is trading at a 62.4% discount relative to its sector peers. There’s no indication that the firm’s P/E is a value trap as its PEG ratio is currently trading at 0.03, meaning that Hibbet’s earnings per share growth is significantly higher than its P/E ratio.

Hibbett’s EV/Sales ratio of 0.69 signals that we’re looking at a highly efficient company with none of its monetary assets seemingly going to waste. 

Insider Buying

Corporate insider buying is a helpful way to analyze internal management’s optimism regarding a firm’s future performance. According to TipRanks’ insider trading tool, the consensus among the retailer’s leaders is very positive, with 645 thousand shares being bought by company executives over the past three months. Among the top buyers has been the group’s President & CEO, Michael Longo, who added $350,350 worth of Hibbett shares to his portfolio during the past quarter.

Wall Street’s Take

Turning to Wall Street, Hibbett has a Moderate Buy consensus rating, based on two Buys, one Hold, and no Sells assigned in the past three months. The average Hibbett price target of $116 implies 67.9% upside potential.

Concluding Thoughts

Hibbett stock is looking pre-pandemic cheap again amid improvements in digitalization. The company’s underserved area growth strategy is still running hot, and we could see it eclipse the 1,500 stores soon. According to key metrics, the stock is undervalued by a remarkable amount.

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Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.