Big Five Sporting Goods (BGFV)

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Key Statistics

Enterprise Value = $204.78 million

Operating Income = $36.44 million

EV/Operating Income = 5.59x

Earnings Yield = 14%

Price/Revenue = .15x

Debt/Equity = 25%

Debt/EBITDA = .91x

The Company

Big 5 Sporting Goods is a sporting goods retailer. They operate primarily on the West coast. In addition to their physical stores, they also have an electronic presence. The original location was built in California by Robert Miller. It started in 1955 selling World War II surplus items. They have grown to 432 locations and the typical store is roughly 11,000 square feet.  Their focus is on limiting prices. They purchase brand-name merchandise but acquire inventory via over-stock and close-outs, ensuring they can obtain the inventory at the cheapest prices available.

Sentiment

The market utterly despises this stock. Year to date it is down 57.64%. The stock now trades below book value of $9.48 per share and boasts an absurdly high dividend yield of 8.16%. The stock price is now down near lows experienced during the Great Recession.

My Take

Big 5 is the kind of stock I love: its an absurdly cheap stock in which investors appear to have thrown the baby out with the bathwater. In the most recent quarter, revenue fell 3.2% and operating income fell 25%. Angels and ministers of grace defend us!

Big 5 isn’t producing impressive results, but it’s not a collapse either, which is how it is currently priced. The current Amazon-driven retailpocalypse is making investors throw away small retailers like Big 5 with abandon.

I don’t normally chase dividends, but the stock pays a healthy dividend of 8.16%, which should far surpass what the S&P 500 will deliver long-term. Free cash flow ($27.56 MM over the last twelve months) is robust enough to support the dividend. If Big 5 can deliver on a decent holiday season, I hope I can get a return through multiple appreciation. A movement in the stock from the current 7.35 P/E to a still-depressed 10 would be a 36% return. The 8% dividend yield isn’t something I typically chase, but it is nice to be paid while I wait.

The small size is also attractive. In the ‘90s, the company was taken private and was bought out by management. At such an absurd valuation, I don’t see why the same thing couldn’t happen again if the market continues to look at the stock with such intense hatred.

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.

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