Big 5 Is A Winning Stock

| About: Big 5 (BGFV)
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Summary

The stock is selling at a third of sales.

Same-store sales has increased.

Yield over 3% and excellent metrics.

The company has an active share repurchase program.

Big 5 Sporting Goods (NASDAQ:BGFV) was founded in 1955 and is based in California, with over 400 sports retail outlets in a dozen states. The company has numerous favorable metrics in place to make this stock a great value play.

The factors that can make this stock rise include increasing sales, an extremely low price-to-sales ratio, a reasonable price-to-earnings ratio, share buybacks, and a fat yield. Let's dig a little deeper into these features.

Rising Revenues

Even with a value stock, investors still like to see rising revenues. For the third quarter, net sales increased to $265.1 million from net sales of $259.1 million, and the revenue growth is not just from more stores. Organic growth is also taking place with same-store sales increasing by 1.0% for the quarter.

According to Steven G. Miller, Chairman, President and Chief Executive Officer, "We are pleased with our third-quarter results, which exceeded our earnings guidance. After comping negatively in the low single-digit range in the first half of the quarter, sales comped positively in the low-mid single-digit range for the back half of the quarter as we benefited from strong sales of summer products and relatively favorable weather compared to the prior year."

Dividends

Big 5 has been a consistent dividend payer, generating quarterly dividends for the last ten years. The dividend payout is well covered with $8.74 million in dividends paid out and $26.19 million coming in. The current yield is a beefy payout of 3.1%. High dividends can help reduce the volatility of the shares and can move the stock price higher.

Share Buybacks

One of the best upside catalysts that the company has going for it is an active ongoing share repurchase program amounting to $20.0 million. During the fiscal 2014 third quarter, pursuant to its share repurchase program, Big 5 repurchased 114,200 shares of its stock for a total amount of $1.2 million. As of the end of September, Big 5 had $7.3 million available for future share repurchases. These buybacks help put a floor under the stock price and can help to drive the price higher.

Excellent Financial Ratios

Big 5 has a solid set of financial ratios, which can get the attention of investors and analysts. Starting with the price-to-earnings ratio and comparing it to competitors, the stock trades at 19 times trailing earnings and 15 times forward earnings. This is better than Dick's Sporting Goods (NYSE:DKS), which has a forward PE of 16, and Sport Chalet (NASDAQ:SPCHA), which is currently not generating earnings.

The price-to-sales ratio shows how the stock is trading in relation to the sales per share. The lower to ratio the better the buy in relation to the company revenues. The P/S ratio for Big 5 is an outstanding 0.33, whereas Dick's ratio is 0.89.

Finally, the price-to-earnings growth ratio, also known as the PEG. This is the stock price in relation to earnings growth, lower the ratio the better. The PEG for Big 5 is 1.27 versus 1.38 for Dick's.

These are an excellent assortment of metrics to help bump up the stock price.

Risks

Although the company has a lot going for it, potential investors should be aware of risks and issues. For the latest reported quarter, earnings tanked by 18.3%. Big 5 needs to get its earnings under control, otherwise another drop would be a drag on the stock.

Also, the company does carry debt in excess of $58 million, but fortunately it has a favorable current ratio of 2.16.

Although Big 5 appears to be operating better than the direct competition, it does have competition from the big box stores, such as Wal-Mart (NYSE:WMT).

Conclusion

The stock does have a few issues to be aware of, but the benefits outweigh the risks. Summarizing the mechanisms which makes this stock a buy are the fact that the company has increasing revenues and organic growth, a higher than industry average yield of 3.1% with a long-term dividend payment record, significant stock buybacks with substantially more purchases to take place, and top metrics, including the PE, the P/S, and the PEG ratios. This amalgamation of upside triggers should cause the stock price to rise.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.