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

— -- Q: What do you think of Dick's Sporting Goods dks as an investment?

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.

Step 3: Compare the stock's current valuation to its historical range. BetterInvesting's Stock Selection Guide can help. If the analysts are right, and the company grows 20% a year the next five years, that would put the stock in the "hold" range. That's a yellow light for investors who think the price-to-earnings ratio will return to historical norms.

Step 4: Check the company's financial health. Before investing in any company, you want to make sure it's in good financial shape. A quick way to check is to look at where it falls on the USA TODAY Stock Meter, which ranks stocks from conservative (1) to aggressive (5). Dick's scores a middling 3.0 here. You can get a Stock Meter score for almost any stock by going to money.usatoday.com and putting the stock's ticker symbol or company name into the Get a Quote box.

What's the bottom line? In Dick's short history as a public company, investors have been surprisingly well rewarded for the large risk they've taken. But investors who don't already own the stock may have missed the run for now. Unless the company can turbocharge growth, the stock at current levels doesn't offer the value that would make it attractive.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.