Shares of Big 5 Sporting Goods (NASDAQ: BGFV) are receiving a lot of investor interest as of late due to the stock’s 39.3% increase over the prior three months. Shareholders are now asking themselves whether the company’s current stock price is reflective of its true value or if shares have even further upside from here.
Let’s take a look at Big 5’s value and outlook based on its most recent financial data to see if there are any catalysts for a price change.
What’s The Opportunity In Big 5?
According to our 8 valuation models, Big 5 seems to be fairly priced in the market at 8.9% below its intrinsic value. Meaning if you buy Big 5 today, you’d be paying a reasonable price for it. If you believe the company’s fair value is $9.26, then there’s not significant upside to be gained from mispricing.
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF EBITDA Exit||$11.61||36.6%|
|5-yr DCF EBITDA Exit||$11.87||39.6%|
|Peer EBITDA Multiples||$11.23||32.1%|
|10-yr DCF Growth Exit||$9.81||15.5%|
|5-yr DCF Growth Exit||$9.53||12.2%|
|Peer P/E Multiples||$4.44||-47.8%|
|Dividend Discount Model||$8.62||1.4%|
|Dividend Discount Model (multi-stage)||$6.96||-18.1%|
Click on any of the analyses above to view the latest model with real-time data.
In addition, it seems like Big 5’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta .
Can We Expect Growth From Big 5?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matters the most, a more compelling investment thesis would be high growth potential at a cheap price.
source: finbox.io data explorer
However, with negative EBITDA growth of 0.7% expected over the next five of years, near-term growth certainly does not appear to be a catalyst for a buying decision for the company. This tips the risk-return scale towards higher risk.
What This Means For Investors
Growth investors typically look to invest in companies that are expanding sales, gaining market share and building customer bases. On the other hand, value investors often argue that the most successful investments are in companies that deliver the highest cash flows while trading at the lowest valuation.
But why not put those hands together? A company that has both growth and value characteristics would certainly make the most attractive investment. So what did we find out about Big 5?
Big 5’s future growth is relatively low and the stock appears fairly valued at the moment according to our valuation models. As a shareholder, you may have already conducted your fundamental analysis on the company and the stock’s recent appreciation may have been expected. Therefore, it may be time for investors to take some chips off the table. For prospective investors looking to purchase shares of Big 5, it may be worth holding off until the stock develops a larger margin of safety.
It is important to note that there are a variety of other fundamental factors that I have not taken into consideration in this article. If you have not done so already, I highly recommend that you complete your research on Big 5 by taking a look at the following:
Valuation Metrics: what is Big 5’s short ratio and how does it compare to its publicly traded peers? It represents the percentage of total shares outstanding that is being shorted. View the short ratio here.
Risk Metrics: how much interest coverage does Big 5 have? This is a ratio used to assess a firm’s ability to pay interest expenses based on operating profits (EBIT). View the company’s interest coverage here.
Efficiency Metrics: fixed asset turnover is calculated by dividing revenue by average fixed assets. View Big 5’s fixed asset turnover here.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.