You might not want to play with Dick's Sporting Goods

— -- A: Readers on the East Coast who use skis, golf clubs or athletic shoes are likely familiar with Dick's Sporting Goods.

The company has used innovative retailing techniques to make sporting goods stores more than just warehouses with shelves of baseball bats and gym weights. The stores are designed to give each department almost the feel of a specialty store. Dick's, for instance, hires golf experts to staff the golf department to give consumers advice.

Solid financial management and steady expansion westward have resulted in stable and rising profitability. Dick's now has more than 300 stores in states as far west as Nevada. So, let's look at the company by using the four Ask Matt steps:

Step 1: Risk vs. reward. When you take a risk on a stock, you want to make sure you're properly rewarded. Downloading Dick's trading history back to 2002, we see the company generated an average annual compound rate of return of 42%. That is a solid return and about 320% greater than the long-term average annual return of the Standard & Poor's 500 index.

But to get that return, you accepted considerable risk — standard deviation of 62 percentage points. That's 226% greater than the S&P 500's long-term risk. That's tremendous risk, but you've gotten a 320% higher return for the 226% higher risk. Keep in mind, though, that this is based on just six years of data, which is inadequate for a proper analysis.

Step 2: Measure the stock's discounted cash flow. Some investors decide if a stock is pricey by comparing its current price to the present value of its expected cash flows. It's a complicated analysis made simple with a system from NewConstructs. When we run Dick's stock, we find it's rated "very dangerous." In other words, the current stock price is much greater than what the company is expected to generate in cash over it's lifetime. If you're looking for a bargain, you're not getting it with Dick's at these prices.