Dick’s Sporting Goods (NYSE: DKS) popped up on a screen of institutional selling last November and instantly caught our attention. Institutional selling remained high throughout the calendar Q4 2021 period, and it even reached a peak, but there is indication that the tide has turned for this industry. E.W. Stack, the company's major shareholder and chairperson, bought some shares and when we say he purchased shares, we mean he acquired a significant position in the firm. Mr. Stack made a single purchase of 227,000 shares for approximately 0.26 percent of the outstanding stock, raising total insider holdings to more than 30%.
Insider selling in 2021 was bearish, but there is a mitigating factor to consider. Since the second quarter of 2021, insider selling had tapered off and approached zero in Q4. Taking Mr. Stack's transaction into account, net insider activity in Q4 was worth about $23 million, while net activity during the second half of the year was slightly more than $13.50 million.
However, the institutional activity should not be dismissed, and it is a warning flag that should not be ignored. Institutional activity accelerated in Q4, but there's also a mitigating influence at work here. The institution selling is coupled with significant position adjustments just before and after the Q3 earnings are announced. That activity is balanced by several substantial purchases made in December, as well as other factors that counteract it. As the institutions began to rotate into and out of the stock, the analyst's mood improved from Hold to Buy, and the consensus price target rose as well.
Analyst Sentiment For Dick's Stock Firms
Over the previous 6 weeks, an increase in Analyst Sentiment in Dick's Sporting Goods Stock suggests that the shares have a potential for a double-digit return. The current price target is $129.81, up from a firm Hold to a weak Buy. The consensus price target assumes about 13% upside for the stock, whereas the high price objective of $180 implies a greater potential 56%. In the wake of the Q3 report and the consensus expectations, Cowen set a high of $180. The consensus forecast is still rising, having increased by 132 percent over the last year, 4% in the previous 90 days, and 2.5 percent in the previous 30 days as analysts attempt to handicap Q4 outcomes.
The stock of Dick's Sporting Goods is scheduled to release earnings for the fourth quarter on March 10, 2022. The analysts predict a 20% sequential increase in revenue, which we believe understates the company's growth. The 4.8% year-on-year increase is a big slowdown from previous trends, and we don't believe it reflects the consumer robustness that we witnessed (and contributed to) in the last two weeks of the year. The lesson is that unless Dicks' Sporting Goods makes a significant move higher, it will exceed the consensus estimate. Remarkably, Citigroup put Dick's Sporting Goods at #1 for aggressive dividend growth this year.
The Takeaway: Dick’s Sporting Goods Has A Short-Squeeze Brewing
Dick's Sporting Goods put in a top during the fourth quarter, but our view was that it changed from up to sideways and not down, and now the trend is about to reverse. One thing to keep in mind is the short interest. Dick's Sporting Goods stock had a short-interest of 18.75% as of January 2022, which is high enough to enable a short-covering rally if not a short-squeeze. The $100 mark appears to be forming a bottom right now. Resistance is at the $115 level. If price action can exceed $115, it will rise into the range leading up to the next earnings report. If the price does not return to $115, there may be another opportunity to get in at $100 before we see price action above $115.