When I published this article options premium was low. Since then ASO skyrocketed and then shot straight down. If you got in and made a profit good for you.
Heed my warning…..Academy Sports and Outdoors has been quietly waiting, watching, and planning to dominate the U.S retail sporting goods market for the past 2 years. Now the giant has awoken….and it’s ready to generate insane revenue for its investors.
If you don’t have the time to read this article then your main takeaway is that currently ASO is exhibiting all the main characteristics of a great investment. That’s it, saved you time, thanks for coming to my TED talk.
However I highly suggest giving me the measly 10 minutes of your time to give you some free stock research. It could make you thousands of dollars…
In this article I am going to provide an analysis of the fundamentals, the technicals, and give an investment thesis as to why ASO should at the very least be on your radar going forward.
Here at ChronoHistoria I teach people how to generate well above normal returns in the stock market. As such, if you like content like this feel free to subscribe to the free newsletter (top right of the screen).
Without further ado, let’s jump right into the ASO Stock Analysis.
The fundamentals section briefly highlights the business model, risks, growth strategy, and finances. The goal here is to give you a clear outline of what ASO does, how it does it, and how well it can do it going forward.
At the end of this section is a summary so that you can skip ahead and get the main points.
Business Model (Source)
Academy Sports and Outdoors is an all in one sporting goods and outdoor hobby retailer. They sell everything that will allow you to play your favorite sport in style and at varying cost effective brands.
The real trick here is that ASO owns three tier brands for each major piece of sporting equipment. They have a low tier for cost effectiveness, a mid tier for the average consumer, and a high tier whose profit margin is insane. As you can guess, this is an internal store sales funnel designed to maximize profit.
This alone however does not make a good store. ASO takes it a step further by purposely marketing their products to ethnic demographics in the United States with high sales conversion rates. The largest of these demographics are “Sporting Mothers” who buy sports equipment for the entire family.
ASO since 2019 has allowed customers to place an order online and come to the store to pick it up. Further, ASO has next day delivery in most of its geographically covered area. This has seen ASO become a major player in e-commerce well ahead of their sector competition.
Because of all of this, ASO has seen revenue skyrocket over the past two years. This business model purposely allows for rapid expansion as well and over the next several years we can expect ASO to rapidly expand to new geographic locations.
ASO’s main risks revolve around the company’s efforts to rapidly expand across the United States and the ongoing pandemic.
For rapid growth, ASO is now attempting to rapidly expand in urban centers across the United States by employing a new “microstore” strategy. This store will allow consumers to buy their product online and then pick it up in the store.
This type of store will cut back on overhead while at the same time maximizing revenue. However, whenever a company expands it takes on risk. ASO could fail in researching locations to put their target stores, or what audience demographic to focus their marketing attention on.
This risk overall is not that big of a deal. The reason behind this is because ASO’s sector is sporting retail goods, which it dominates. That being said, if ASO expands too rapidly without acquiring the right resources/talent then it could falter.
The main risk present in ASO right now is the ongoing Covid-19 pandemic in the U.S. So long as the pandemic continues sporting events will continue to have sub-par attendance rates. However the U.S is currently maximizing efforts to return the population to full capabilities of the pre-pandemic world. This would cause a huge influx to sports, and as a result sporting goods.
Both of these risks are minimal right now. I don’t think that the pandemic will continue for much longer nor is ASO going to flop on their expansion attempts. The main thing to watch out for is the necessary executive talent they will need to bring on. The right executive will propel ASO into the future.
In the past 5 months ASO has raised capital through concurrent share offerings. Recently ASO has sold 18.64 million shares at a share value of $44.75 while also buying back 4.5 million shares at $43.32.(source)
These share offerings for a good company that is profitable indicate that a period of rapid expansion is underway. This is typically a very bullish sign in the near term.
Further, the overall growth strategy for ASO is to move out of the U.S South East and into urban centers across the United States. ASO plans on marketing their sporting goods to rapidly expanding urban populations over the next 5-7 years.
What this means is that the overall growth strategy for ASO is to rapidly expand across the major cities in the United States. This is significant ‘white space’ or open economic areas with capital requirement for entrance.
ASO plans on opening up several new ‘micro stores’ across the U.S in urban centers with same or next day delivery. This combination of e-commerce and brick and mortar is perfect for urban centers. The e-commerce giant Amazon pioneered this business model in the mid 2010’s with great success in the Seattle area.
Overall the growth strategy is very achievable and can cause significant investor capital growth.
The finances for ASO look great. Here is a quick summary rundown of their most recent 10-q (quarterly report).
- Total current assets increased by 18% from preceding quarter
- Total current liabilities only increased by 2% from preceding quarter
- Long-Term Debt decreased by 13%
- Total overall liabilities decreased by 3%
Overall this was a very successful quarter for ASO. Their shift from in person stores to e-commerce aided sales and in store pickups has greatly increased their total revenue while lowering overhead.
This alone would make ASO a good investment. However, since ASO only serves the southeast U.S there is huge economic opportunity present in this investment.
Overall the finances are in great condition for the growth strategy and business model on ASO.
Summary of Fundamentals
ASO presents an interesting opportunity where a company is incredibly successful serving a very small amount of retail consumers in a limited geographic location.
ASO is primed to grow into high population density areas across the United States and employ their business plan, resources, connections, and talent to dominate the retail sports industry.
This is what you want to see from a company before it starts to rapidly expand upon its business model. The risks are managed and minimal, the growth strategy is easily achievable, and the finances are set and ready to support the business.
Now let’s look at the technicals to get an idea of how the stock will react to the business’s success in the coming years.
Technicals of ASO
Just to clear everything up, we are not looking at charts/drawings on graphs here in the technical analysis section.
This section is just to look at the chart’s trend, the average volume, the float, and short percentage. Analysts do this to see how a stock will react to the fundamentals slowly changing over time for a public company. At the end I will give a summary of what to expect if ASO stays on its current trend.
Anyways, let’s jump right in.
ASO has gradually trended upwards since being publicly listed in October of 2021. The last 4 earnings reports the ‘street’ has been off and ASO has smashed the analysts expectations.
Because of this EPS has gradually increased and with it the total stock price. This trend looks to be continuing for the foreseeable future with their latest earnings report being 35% above analysts expectations.
Average Volume (Source)
The average volume for ASO has been gradually climbing over the past several months. Currently the average volume for the past 3 months is close to 2.36 million.
However… The volume for the past 10 days has been 5 million. This is abnormal because as a stocks price increases then in theory the volume should as well.
What this indicates is that larger accounts (funds, wealth management, IB) are looking at ASO. Also, it’s not uncommon to see retail traders wandering into a good investment at this point either.
Higher volume with an upwards trend is always good.
The Float (Source)
The float on ASO is 70 million shares. That is low in comparison to other companies and I expect ASO to increase its float value in the coming years through share offerings.
This will consolidate the stock price at whatever price ASO starts the offering process at.
This is a good sign as since they have not performed this action yet the company is indicating that there is upwards growth to come.
Just be aware that the current float is low and as such you can expect some wild fluctuations in price so long as volume continues to climb.
Short Percentage (Source)
The current share short percentage is 19.15%.
This is rather large for a company that has consistently seen growth. If I had to guess this is either for a hedge on institutional ‘smart money’ positions or a result of the delta variant in the U.S.
Overall however, this high short percentage along with the low float and climbing volume could indicate a short squeeze if the U.S continues to re-open.
Summary of Technicals
Overall the technicals for ASO are great. They indicate bullish trends and an expected continued rise in overall stock price. The short percentage and low float could indicate a short squeeze if the stock price rises sharply.
However, I don’t think this will happen unless there is a strong retail trading support on social media.
Ok, so here is why I believe that ASO is going to increase in stock price. Let’s cover some basic facts of the stock.
- ASO provides sport’s equipment
- ASO markets these products to urban demographics
- There is a ton of ‘white space’ for growth in ASO
- The finances are amazing for ASO
The key to understanding ASO’s economic potential is to look at what percentage of the U.S population plays sports and the growing population demographics of the United States.
Thesis Part 1: Amount of U.S Population that Plays Sports
In an article published in 2015 by the Harvard School of Public Health three out of four adults played sports when they were younger, while only one of four continued to play into their adult years. (Source)
Further, this trend of playing sports across all age brackets of the U.S population is on a rise.
This above chart from the U.S Bureau of Labor Statistics shows how from 2003 to 2015 the amount of U.S adults who engaged in sports on an average day increased. (Source)
What does this mean? Well, we know that there is a growing portion of the U.S population who play sports on a daily basis across all age groups. This increasing demographic of sports players indicates a rising demand for sporting accessories and goods.
Goods and accessories that Academy Sports and Outdoors is going to be able to provide. This is a great sign for long term growth in a company.
The underlying consumer basis for ASO’s products and services is going to increase over time naturally. This will result in increased revenue for ASO, which will result in a higher stock price going forward.
This however is not the only part of this investment thesis. There is another.
Thesis Part 2: The U.S Population is Moving to Cities
Urbanization is a variable that exists in the realm of macro economic history. It accounts for a ‘draw’ that rural and suburban people feel as they look to move to a city.
The U.S has been urbanizing at an ever increasing rate over the past two hundred years. The aptly named Urbanization in the United States, 1800-2000 report published by National Bureau of Economic Research describes this phenomenon and how the U.S is moving towards becoming a completely urban nation. (Source)
The U.S Census has further reiterated this fact by stating “The Nation’s urban population increased by 12.1 percent from 2000 to 2010, outpacing the nation’s overall growth rate of 9.7 percent for the same period.” (Source)
Overall this is very good for our thesis as it means that ASO’s move towards urban centers around the nation means that they will profit from an increasing population growth and urbanization of the U.S population.
Its a key move to grow an already booming company.
Summary of Investment Thesis
So we know that the U.S population is going to play more sports than ever and that the urban areas are going to explode in population over the next coming years.
Academy Sports and Outdoors is perfectly positioned to capitalize upon this sector growth. Their underlying business model is perfectly suited for capturing this movement in the market and it makes a great investment vehicle for passively growing wealth over time.
As such the price for ASO can be expected to balloon up to a huge range of $70-$120 over the next couple years if this trend continues. If the retail crowd gets a hold of this investment then chances are it could go even higher due to the 18% short.
That is a huge 35-61% ROI in a very short time frame (1.5-2.5 years).
There you have it, the ASO Stock Analysis: Making Monstrously Massive Returns article on how you can easily beat normal market returns of 10% per year.
Always use your best judgment when looking at these stocks. Sure they could explode easily over time but only take a position if it fits your risk profile and portfolio.
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Until we meet again, I wish you the best of luck in your investment journey.