As irksome as Wall Street’s fickle nature can be, it’s often of great benefit to long-term investors. 

#-ad_banner-#When the Street exits high-quality stocks en masse because of some transient headwinds, it allows value seekers to swoop in and buy at deep discounts — and then make a killing when shares rebound.

There’s just such an opportunity right now, and it involves one of the nation’s leading sporting goods retailers. 

Shares of this company, which has 566 stores in 46 states, are down more than 20% this year because of a rough fiscal second quarter related mainly to weakness in two key categories — golfing and hunting equipment, which together account for 30% of sales.

At this point, the stock is trading at nearly $46, not far off its 52-week low of $42.33.

However, it seems the Street is already beginning to realize it was wrong about this market leader — Dick’s Sporting Goods (NYSE: DKS). Indeed, the stock is up nearly 6% in the past month and shares have been trending solidly upward during the past week, as well.

The reason for this apparent change of heart is anyone’s guess. It could have been the realization that the golf and hunting businesses are cyclical and should eventually start to rebound, perhaps even in the next few quarters.

Or maybe the Street later remembered the first quarter was otherwise strong for Dick’s, especially in the sportswear, footwear, team sports equipment, and e-commerce categories. The fact that the company bought back $25 million of its stock and declared a quarterly per-share dividend of $0.125 might also have helped the Street change its mind.

I mean, who knows why the Street does anything? The important thing is the rebound is only now getting underway — and shares of Dick’s are still a great value relative to the overall industry.

Dick’s Sporting Goods Valuation Metrics

Attractive pricing metrics aside, a cheap stock is only a good value if the underlying company is financially strong and has plenty of growth opportunities. And I’m certainly not worried about Dick’s financial condition.

For instance, the firm has minimal debt of $6.8 million and boasts a debt-to-capital ratio of just 0.36%. At this point, Dick’s could pay off its debt 26 times over from annual free cash flow, which is currently $178 million and has averaged nearly $208 million during the past five fiscal years. The company’s current cash balance of $182 million is more than 29 times total debt, and the amount of cash on hand has averaged $385 million during the past five fiscal years.

Thus, Dick’s could comfortably take on more debt to raise capital to invest in the business, a strategy that would likely pay off in spades considering the firm’s historically attractive rates of return on invested capital (ROIC). During the past 10 years, these have averaged more than 14% a year. During the past three fiscal years, Dick’s delivered even higher ROICs of 16.5%, 17.3%, and 20.6%, respectively.

Despite a relatively quick rise to prominence in the sporting goods market, Dick’s still only has 10% market share, according to Morningstar. So there should be plenty more room for the company to expand operations and profits.

A focus on upscale, higher-quality brands for serious athletes and sports enthusiasts has been, and will continue to be, a cornerstone of the company’s business strategy. Besides maximizing margins, this strategy differentiates Dick’s from the many competitors who primarily offer cheaper, lower-quality products.

Regarding new locations, management says there’s potential for the number of its namesake stores to nearly double to 1,100 nationwide. That’s an ambitious goal, and it would take nearly 17 years to achieve if the firm maintained its five-year average of 32 store openings per year.

However, management has been talking about dramatically increasing store counts for several years and has quickened the pace of new store openings, adding 36 in 2011, 38 in 2012, and 40 in 2013. Therefore, each year it seems feasible for Dick’s to open as many stores as in the prior year plus two, meaning 42 this year, 44 in 2015, 46 in 2016, and so on. At that rate, the store count would approach the 1,100 mark in around nine years rather than 17. 

While the firm’s namesake stores will obviously continue to be its main revenue sources going forward, it should continue generating substantial sales through the Golf Galaxy chain it acquired seven years ago for $225 million. This provider of high-performance golf equipment generally accounts for about 10% Dick’s total revenue. However, this can spike to around 25% during the second quarter, which is typically Golf Galaxy’s busiest time of the year. The chain had 61 stores at the time of the acquisition, and Dick’s has since built it up to 84 locations.

Golf Galaxy’s 10% decline in comparable-store sales last quarter is only the latest indicator of sagging sales, which have been falling off gradually as economic uncertainty has forced many golfers to cut back their playing time or even give up the game. However, the golfing industry may finally be starting to rebound, and this could soon begin to have a positive effect on Golf Galaxy’s results.

According to the National Sporting Goods Association, the golf participation rate fell from 23.2 million players in 2008 to 20.9 million in 2011, but then rose slightly to 21.1 million in 2012. Last year, the participation rate was at about 25 million, according to the Sports and Fitness Industry Association.

What’s more, there are an estimated 80 million golfers worldwide. So Golf Galaxy may soon benefit from what could be a solid domestic resurgence and could look to supplement this by moving into foreign markets.

Dick’s e-commerce sales have long been a bright spot, climbing 65% last year to about $480 million. Sales of private-label products have been strong, too, and should continue boosting margins. All told, management is targeting total annual revenue of $10 billion by the end of 2017, nearly a 60% increase from the current $6.3 billion.

Risks to Consider: Sporting goods is as highly fragmented industry, and competition is intense. Dick’s will being going head to head with strong rivals such as Sports Authority, Big 5 Sporting Goods (Nasdaq: BGVF), and Hibbett Sports (Nasdaq: HIBB), among others.

Action to Take –> Short-term headwinds have pushed shares into deep value territory, particularly in relation to competitors. With earnings projected to climb about 14% a year, the stock has 83% upside to about $84 during the next five years from about $46 now. Investors interested in the stock should buy soon, since it looks like the market is starting to change its mind about Dick’s and is beginning to appreciate its growth potential.

DKS pays a tiny 1.1% yield, but with a new strategy developed by a former Chicago bond trader, investors can multiply their income from the world’s most reliable dividend payers — collecting income yields of 50% or more in just a few weeks — with the chance to buy these stocks at a huge discount. Check out this easy, three-step Income Multiplier strategy here.