Big 5 Sporting Goods Corp Valuation – Initial Coverage $BGFV

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Undervalued Stocks for the Enterprising Investor – August 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Big 5 Sporting Goods Corp (BGFV) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Big 5 Sporting Goods Corporation is a sporting goods retailer in the western United States. The Company offers a range of products in a sporting goods store format. The Company also offers products online through its e-commerce platform. The Company’s product mix includes athletic shoes, apparel and accessories, as well as a range of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, winter and summer recreation, and roller sports. The Company purchases merchandise from sporting goods equipment, athletic footwear and apparel manufacturers. It offers various brands, such as adidas, Coleman, Footjoy, JanSport, Rawlings, Spalding, Asics, Columbia, Franklin, Lifetime, Razor, Speedo, Bearpaw, Crocs, Gildan, Mizuno, Rollerblade and Timex. The Company operated 432 stores and an e-commerce platform under the name Big 5 Sporting Goods, as of January 1, 2017.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of BGFV – August 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $165,137,757 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.99 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -2.70% Fail
6. Moderate PEmg Ratio PEmg < 20 8.68 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.80 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.99 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.27 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $0.87
MG Growth Estimate -0.61%
MG Value $6.33
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $12.61
MG Value based on 0% Growth $7.39
Market Implied Growth Rate 0.09%
Current Price $7.55
% of Intrinsic Value 119.20%

Big 5 Sporting Goods Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the  small size, low current ratio, insufficient earnings growth over the last ten years. The Enterprising Investor is only concerned with the lack of earnings growth over the last five years.  As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.91 in 2013 to an estimated $0.87 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 0.09% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Big 5 Sporting Goods Corporation revealed the company was trading below its Graham Number of $14.88.  The company pays a dividend of $0.53 per share, for a yield of 7%, putting it among the best dividend paying stocks today.  Its PEmg (price over earnings per share – ModernGraham) was 8.68, which was below the industry average of 48.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $4.6.

Big 5 Sporting Goods Corporation performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $4.60
Graham Number $14.88
PEmg 8.68
Current Ratio 1.99
PB Ratio 0.80
Current Dividend $0.53
Dividend Yield 6.95%
Number of Consecutive Years of Dividend Growth 1


Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2017
Total Current Assets $359,000,000
Total Current Liabilities $179,978,000
Long-Term Debt $47,920,000
Total Assets $465,167,000
Intangible Assets $4,433,000
Total Liabilities $258,385,000
Shares Outstanding (Diluted Average) 21,871,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.05
Dec2016 $0.77
Dec2015 $0.70
Dec2014 $0.67
Dec2013 $1.27
Dec2012 $0.69
Dec2011 $0.53
Dec2010 $0.94
Dec2009 $1.01
Dec2008 $0.64
Dec2007 $1.25
Dec2006 $1.35
Dec2005 $1.21
Dec2004 $1.47
Dec2003 $1.03
Dec2002 $0.48
Dec2001 $0.42
Dec2000 $0.24

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.87
Dec2016 $0.79
Dec2015 $0.79
Dec2014 $0.83
Dec2013 $0.91
Dec2012 $0.74
Dec2011 $0.80
Dec2010 $0.97
Dec2009 $1.02
Dec2008 $1.08
Dec2007 $1.28
Dec2006 $1.24
Dec2005 $1.09
Dec2004 $0.93
Dec2003 $0.59
Dec2002 $0.32
Dec2001 $0.20

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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