Prediction: Dick's Sporting Goods Stock Will go Parabolic After Aug. 25. Here's Why.

The stock for Dick's Sporting Goods (NYSE: DKS), a leading sporting goods retailer, is primed for a big move after it releases its fiscal second-quarter earnings on Aug. 25. The reason has to do with performance trajectory.

Dick's looks like an even better buy, in part, because of a stock sell-off it experienced on Aug. 20 on news that its Britain-based rival JD Sports reported a comparable-store sales decline in the summer quarter and lowered the retailer's outlook. The thing is, JD Sports also had a weak first quarter, with comp sales dropping, so I donʻt expect Dickʻs to suffer the same results, given its momentum.

In the first quarter, Dickʻs posted blowout results with net sales spiking 67% year-over-year to $5.16 billion. Overall comp sales were up 6%. Including Foot Locker, which Dick's bought last September, comp sales were up 4.1%.

So, Dickʻs Sporting Goods is on a different trajectory than JD Sports.

Image source: Getty Images.

Dick's is seeing surging revenue growth

There are few reasons why Dickʻs Sporting Goods stock should take off after Q2 earnings are released on Aug. 25.

First, the stock is cheap. After tanking roughly 5% on Aug. 20, the stock is down 9% year-to-date and is trading at 18 times earnings and 13 times forward earnings. But its earnings have been impacted in recent quarters by costs associated with the Foot Locker acquisition.

Its sales, however, have been strong and its price/sales ratio is very low at just 0.87.

Second, Dickʻs has a robust sales growth outlook. For this fiscal year, it anticipates $22.1 billion to $22.4 billion in net sales, which would be about a 29% increase over the previous year. Adjusted earnings are targeted to be between $13.50 and $14.50 per share, which would be up 6% at the midpoint.

Further, itʻs operating margin shows continued improvement, rising from 3% in Q4 of last fiscal year to 8.7% in Q1.

Analysts at Wells Fargo recently upgraded Dick's price target to $240 per share, from $220. That would suggest 32% upside for the stock. The median price target among analysts is $267 per share, which would indicate a 47% return.

For Q2, analysts target revenue of $5.6 billion, up 55% year over year, and earnings of $3.80 per share, down year over year, mainly due to higher costs related to Foot Locker. Wells Fargo analysts project that earnings will be even lower than that at $3.72 per share, but it is still bullish on Dick's stock.

Growth catalysts

Wells Fargo analysts said they will be looking more at the outlook for the rest of the year than the Q2 earnings. They see Foot Locker ultimately being a catalyst, with the segment's margins rising over the near-term to 7% to 8%, up from the current 1% to 2%.

In addition, Wells Fargo sees Dick's as being one of the primary beneficiaries of a Nike turnaround as Nike looks to reenergize wholesale channels through retailers like Dick's and Foot Locker.

I think that Dick's stock could jump a bit after Aug. 25 earnings, but the larger gains will be seen over the longer term. The stock is cheap, and it has the potential for a strong growth catalyst in Foot Locker.

Wells Fargo is an advertising partner of Motley Fool Money. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy.