Buy Big Five Sporting Goods (NSDQ: BGFV)

By Linda McDonough • March 6, 2017

A brutal environment for retail has produced a silver lining for some. Big Five Sporting Goods is a small-cap ($340 million) sporting goods retailer set to make hay from the demise of its competitors. With little brick and mortar competition standing, Big Five is cleaning up. Earnings are expected to grow 34% this year and 12% in 2018.

The stock could jump another 60% to my $25 target as it mops up demand.

The 2016 bankruptcy of the Sports Authority, which closed the last of its 460 stores in August 2016, along with the closure of local competitor Sports Chalet left a pool of demand for the last man standing.

Big Five’s conservative management has kept the company in tip-top fiscal gear to sweep the field. Slow and steady store growth (2% annually), prudent building up of inventory and disciplined pricing has paid off. In an environment when most brick and mortar retailers are collapsing under monstrous debt payments, Big Five is growing free cash flow (cash left over after big expenditures) 30% and has minimal debt.

Action to take:
Buy BGFV up to $18
Price Target: $25

Or, as an alternative to buying Big Five’s stock outright, consider using this more aggressive option strategy.

Big Five doesn’t have any near-term events on its investor calendar but will report its first-quarter earnings in early May. These July calls give you plenty of time to capture the upside I expect from that release. Details on the call will be announced closer to the earnings date.

Action to take:
Buy to open the July, 21 2017 call on Big Five Sporting Goods (BGFV) with a strike price of $17.50 at $1.10 or lower. Symbol (BGFV170721C17.5)

Stock Talk

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Ronald Towler

03/06/17 ‐ 12:23pm ET March 6, 2017 at 12:23pm ET

Linda: sold CBI MAR24 33.5P this morning. after your email back to me last week, I entered a limit order of $2.45, that gave me a net $94 on a $1.35 option. Really wanted to double my money so I could be more like you. Buttttt, it’s a depreciating asset and we know what happens to PIGS.

Thanks, R. T.

Linda McDonough

03/06/17 ‐ 3:37pm ET March 6, 2017 at 3:37pm ET

Congratulations on the nice trade Ronald! It’s always a hard decision whether to cash out or wait but the market has been so strong as of late that making a nice profit in a put is terrific.
Linda

LS

03/09/17 ‐ 11:04am ET March 9, 2017 at 11:04am ET

Any reason for the drop in price today?

Linda McDonough

03/10/17 ‐ 9:27am ET March 10, 2017 at 9:27am ET

I can’t find anything specific. Some retailers are heavy today but no BGFV specific news. Under Armour has been under pressure but one of the things I like best about BGFV is very little exposure to Under Armour and less apparel sales versus other sporting goods retailers. I’ll keep you posted if I see anything new.
Linda

SP

03/27/17 ‐ 10:14am ET March 27, 2017 at 10:14am ET

Do we need to sell the BGFV stock and option now?
The price seems to be trending in the opposite direction; please advise.

Linda McDonough

03/28/17 ‐ 7:39am ET March 28, 2017 at 7:39am ET

Hello,
I think you’re fine holding both. The option expiration is way out in July, which gives us plenty of time to see the stock pop. Retailers have begun to act a bit better over the past few days so I’m hopeful BGFV will begin to move up. As always, if the position is making you feel uncomfortable you can always put a stop loss on half your position to limit any losses.
Best,
Linda

Melody Pfingsten

03/28/17 ‐ 11:13pm ET March 28, 2017 at 11:13pm ET

Linda, I am curious if you know if you took say all your stock and option picks what would be the total return taking into consideration the price. So if you make 20% on ldl which was say 50.00 and sold at 60 you made 10 points; but say acuity which was way more expensive and you lost 10% but that is say 40 points loss, what is the overall picture. I was curious obviously with options as well.

Linda McDonough

03/31/17 ‐ 1:43pm ET March 31, 2017 at 1:43pm ET

Melody,
My apologies for the delay. Since inception, January 2016, Profit Catalyst stock trades are up 12.6% on average. That includes an average gain of 16% on closed positions and an average of 10.45% on open positions. Year to date the closed gains are much higher, up 33%, as I’ve learned to take big gains instead of waiting and possibly seeing the stocks round trip. Option trades are up 21% since inception.
Does this answer your question? I don’t have anything on absolute returns as it would depend on the dollars invested.
Best,
Linda

Cesare

04/03/17 ‐ 1:49pm ET April 3, 2017 at 1:49pm ET

I don’t see any July Options on BGFV In Schwab Strret Smart Edge…. do you think they took them down or just a glitch?
i did put in a day limit order for $15.00 which just closed.

Linda McDonough

04/04/17 ‐ 6:30am ET April 4, 2017 at 6:30am ET

Cesare- They are available but with my Fidelity account, for example, I have to select the further out month. They are currently trading at 65c. I think they are a great buy here.
Best,
Linda

Charles

05/03/17 ‐ 11:08am ET May 3, 2017 at 11:08am ET

Linda,
Any thoughts on BGFV continuing to drop? I thought their report was stellar yet it continues to slide.

Linda McDonough

05/03/17 ‐ 1:39pm ET May 3, 2017 at 1:39pm ET

Charles,
I’m with you- the numbers were great and all I had hoped for. When I saw the stock trade up to $18.50 after the close last night I was excited for the open. I think it has more to do with the soft market today than any fundamental issue. I think it’s a great buying opportunity as the strong sales have kept up in the second quarter.
Best,
Linda

Linda McDonough

08/03/17 ‐ 9:21am ET August 3, 2017 at 9:21am ET

Hello all,
Big Five Sporting Goods (NSDQ: BGFV) dropped this week after reporting a less than expected quarter. Big Five has been dropping due to poor results from many of its sporting goods competitors which I erroneously thought would cushion the stock if results were soft. I was wrong but have a hard time selling a stock that currently sells for 9x 2018 estimates and has a 6% dividend yield.
Although April and May were good months for Big Five, June comps dropped mid-single digits, primarily in camping and firearms. July comps are down low single digit as well. Lower estimates for the third quarter assume no real upswing in comps for the final two months.
One bright spot for the company is profit margins which were up year over year. I am giving the company one quarter to prove that the weakness in camping is due to wet weather (many California campgrounds were closed early in the summer).
I recommend subscribers place a $8 stop loss on positions.
Best,
Linda

LS

08/21/17 ‐ 11:38am ET August 21, 2017 at 11:38am ET

Has everyone sold?

LS

08/24/17 ‐ 11:35am ET August 24, 2017 at 11:35am ET

I have looked for news but found none. Is there any reason for the just in price?

Linda McDonough

08/24/17 ‐ 12:58pm ET August 24, 2017 at 12:58pm ET

LS,
BGFV reported a mildly disappointing quarter earlier in August. Below are my comments regarding the quarter. Retail has mercifully been acting much better, with stocks moving up on decent results. I expect BIg Five to move up with the group. It is crazy cheap and has less exposure to performance basketball shoes than names like Foot Locker, which are seeing very weak demand.
Please let me know if this answers your question.
Best,
Linda

Big Five Sporting Goods (NSDQ: BGFV) reported a less than expected quarter. Big Five has been dropping due to poor results from many of its sporting goods competitors which I erroneously thought would cushion the stock if results were soft. I was wrong but have a hard time selling a stock that currently sells for 9x 2018 estimates and has a 6% dividend yield.

Although April and May were good months for Big Five, June comps dropped mid-single digits, primarily in camping and firearms. July comps are down low single digit as well. Lower estimates for the third quarter assume no upswing in comps for the final two months.
One bright spot for the company is profit margins which were up year over year. I am giving the company one-quarter to prove that the weakness in camping is due to wet weather (many California campgrounds were closed early in the summer).
I recommend subscribers place a $8 stop loss on positions.

Mark M

01/03/18 ‐ 10:32am ET January 3, 2018 at 10:32am ET

Hi Linda,
I am still holding out for BGFV (the stock position, not the option), but so far been losing. I am thinking of adding more to my holdings (income average down a bit) but don’t want to do this if you are thinking of selling it out of your portfolio soon. Do you have any additional thoughts you can share?

Linda McDonough

01/04/18 ‐ 10:00am ET January 4, 2018 at 10:00am ET

Hi Mark,
I still like the stock. The current sales and earnings estimates look reasonable to me. The valuation is crazy low, trading with a price to earnings (P/E) multiple of 8!
Also, we’ve seen positive commentary out of Foot Locker (NYSE: FL) and Finish Line (NSDQ: FINL). Big Five has traditionally issued a sales update mid-January with earnings in late February so we’ll have some news soon.
Best,
Linda

Linda McDonough

01/09/18 ‐ 1:02pm ET January 9, 2018 at 1:02pm ET

Hello subscribers,
Obviously, I was wrong on BGFV being able to make estimates. The company provided guidance this morning well below expectations. I am most disappointed in their profit margin guidance. I am still going through the details but suggest a $6.25 stop loss on positions.
Best,
Linda

Mark M

01/09/18 ‐ 2:32pm ET January 9, 2018 at 2:32pm ET

You “can’t with them all”. Painful/expensive loss for me and worse because i was income averaging down 🙁 throughout the recommendation. Will wait to see if you feel its worth holding out longer or realizing the loss. Thanks for the quick update.

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