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Is Performance Sports Group Ltd. the Hidden Gem of the Retail Industry?

Performance Sports Group Ltd. (TSX:PSG)(NYSE:PSG), one of the world’s leading retailers of sporting apparel, equipment, and accessories, announced record third-quarter earnings results after the market closed on April 13, but its stock responded by falling over 3% in the trading session that followed. Let’s take a closer look at the quarterly results to determine if this weakness represents a long-term buying opportunity.

The record-setting results

Here’s a summary of PSG’s third-quarter earnings results compared to what analysts had anticipated and its results in the same quarter a year ago. All figures are in U.S. dollars.

Metric Reported Expected Year-Ago
Earnings Per Share $0.13 $0.10 ($0.11)
Revenue $137.75 million $137.12 million $62.20 million

Source: Financial Times

In the third quarter of fiscal 2015, PSG reported an adjusted net profit of $6.2 million, or $0.13 per share, compared to an adjusted net loss of $4.2 million, or $0.11 per share, in the year-ago period, as its revenue increased 121.5% to $137.75 million. These very strong results can be primarily attributed to the company’s $330 million acquisition of Easton’s baseball and softball business, which closed in April 2014 and led to revenues increasing 2,379.3% to $71.9 million in its baseball & softball operating segment.

Here’s a quick breakdown of eight other notable statistics and updates from the report compared to the year-ago period:

  1. Revenues increased 9.3% to $53.9 million in its hockey segment
  2. Revenues increased 19% to $11.9 million in its other sports segment
  3. Adjusted gross profit increased 133.8% to $46.3 million
  4. Adjusted gross margin expanded 180 basis points to 33.6%
  5. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at a profit of $14.4 million compared to a loss of $3 million in the year-ago period
  6. Operating income came in at a profit of $2.52 million compared to a loss of $10.42 million in the year-ago period
  7. Total assets increased 4.6% to $858.34 million
  8. Total debt increased 229.7% to $431.2 million, which reflects the company’s financing of the Easton acquisition

Does Performance Sports Group belong in your portfolio?

I do not think the post-earnings drop in PSG’s stock was warranted and actually represents a very attractive long-term buying opportunity. I think this because the stock trades at very inexpensive valuations, including just 22 times fiscal 2015’s estimated earnings per share of $1.09 and only 19.2 times fiscal 2016’s estimated earnings per share of $1.25, both of which are very inexpensive compared to its long-term growth potential.

I think the company’s stock could consistently command a fair multiple of at least 25, which would place its shares upwards of $27 by the conclusion of fiscal 2015 and upwards of $31 by the conclusion of fiscal 2016, representing upside of more than 12% and 29%, respectively, from current levels.

With all of the information provided above in mind, I think Performance Sports Group represents one of the best long-term investment opportunities in the retail industry today. Foolish investors should take a closer look and strongly consider establishing positions.

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Fool contributor Joseph Solitro has no position in any stocks mentioned.

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