Over the past six months, Academy Sports has been a great trade, beating the S&P 500 by 10.6%. Its stock price has climbed to $53.98, representing a healthy 18.5% increase. This run-up might have investors contemplating their next move.

Is now the time to buy Academy Sports, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Academy Sports Not Exciting?

We’re happy investors have made money, but we don't have much confidence in Academy Sports. Here are three reasons there are better opportunities than ASO and a stock we'd rather own.

1. Revenue Spiraling Downwards

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Academy Sports’s demand was weak and its revenue declined by 1.8% per year. This wasn’t a great result and is a sign of lacking business quality.

2. Shrinking Same-Store Sales Indicate Waning Demand

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Academy Sports’s demand has been shrinking over the last two years as its same-store sales have averaged 3.3% annual declines.

3. Low Gross Margin Reveals Weak Structural Profitability

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Academy Sports has bad unit economics for a retailer, signaling it operates in a competitive market and lacks pricing power because its inventory is sold in many places. As you can see below, it averaged a 34.3% gross margin over the last two years. That means Academy Sports paid its suppliers a lot of money ($65.65 for every $100 in revenue) to run its business.

Final Judgment

Academy Sports isn’t a terrible business, but it doesn’t pass our bar. With its shares outperforming the market lately, the stock trades at 8.2× forward P/E (or $53.98 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

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