Why Academy Sports and Outdoors Stock Just Popped

Academy Sports and Outdoors (NASDAQ: ASO) stock soared 10.9% through 10 a.m. ET Wednesday after reporting an earnings beat this morning.

Expected to earn $2.09 per share on sales of $1.66 billion, Academy instead reported a $2.31 per share (non-GAAP) profit for Q2 on sales only slightly worse than expected -- $1.65 billion. Its forecast for the rest of the year was similar: Better earnings than Wall Street anticipated, and only slightly worse sales.

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Academy Sports Q2 earnings

Same-store sales weren't great at Academy this past quarter, declining 0.4%, but by adding new stores and growing its e-commerce presence, Academy was able to flip total sales growth to positive 3%.

Profit margins expanded sufficiently to then boost (non-GAAP) earnings growth to 19%, including refunds from the overruled Trump tariffs, and GAAP profits rose nearly as much -- 17%, resulting in a $2.17 per share GAAP profit.

What's next for Academy Sports stock

Future sales growth could be even stronger. Adding just three new stores was enough to give Academy 3% sales growth in Q2; in Q3, the company plans to open 11 new stores. Management is for now only sticking with its previous forecast for 3% to 5% total sales growth this year, about $6.3 billion in total sales, with positive same-store sales growth of 2%.

Improved profit margins, however, allowed management to raise earnings guidance to a new range of from $6.05 to $6.45, GAAP. Taken at the midpoint, that means Academy Sports stock is trading at a low 7.7x current-year earnings and roughly 9.2x current-year free cash flow.

For a stock that just turned in 17% earnings growth, and that's forecast to grow earnings 11% annually over the next five years, that looks like a "buy" to me.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Academy Sports And Outdoors. The Motley Fool has a disclosure policy.