In January, I wrote an article about the company because I thought it was on par with Hibbett Sports, which has rallied over 100% since October, just serving a different regional market.
Since then, gurus Jim Simons (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) have both exited with losses as high as 44% from their original buy prices, while Paul Tudor Jones (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) have both either bought in or added to their positions, each seeing gains from the position. Gabelli has a 1% stake in the company with 221,900 shares.
While Hibbett Sports has steadily climbed year-to-date, Big 5’s stock has been more volatile. However, after a bounce from the lows to around $5, there’s not much room left for it to run.
It is still a net current asset trade with $352 million in current assets and just $163 million in total liabilities. Yet, at yesterday’s closing price of $8.05 it offers a lot lower margin of safety, around 10% of that value. It does pays a pretty healthy dividend, with the latest payout of 15 cents per share coming June 15, but I’m not convinced its a long-term hold that would warrant owning just for the dividend, which could be easily stripped away if losses continue to mount.
All retailers will need to adjust with automation and minimum wage increases across the nation, but even though the company generates the same level of revenue as Hibbett, Big 5 pays about $50 million more in operating expenses, making its profit margins considerably less attractive for investors. Big 5 operates mostly in West Coast markets with a store front of around 11,000 square feet, paying higher rents than Hibbett for sure. The real question is whether or not Big 5 is worth $172 million.
Over the last decade, the company earned over $7.00 a share total, and while the cost of sporting goods continues to rise, so does the competition to deliver that to consumers. Thanks to the ease of building a drop shipping marketing machine, e-commerce stores are able to produce profits quicker than ever before as a small business. And, despite a long standing management team led by Steve Miller, who earned over $1 million last year, they haven’t created permanent value for shareholders despite being in their position since early 2000s.
Over the last 15 years of making net current asset trades, they are exactly what Buffett calls them, cigar butts, and tend to fluctuate short term and go bust long term. Nothing wrong with that, but at this price for Big 5 Sporting Goods, it's not a buy.
Disclosure: I have no position in Big 5 Sporting Goods.
