For the first time in about two months, shares of Big Five Sporting Goods (NASDAQ: BGFV) are below $24 as a result of cutting its second quarter forecasts thanks to worse-than-expected same-store sales growth. While the market reacted semi-dramatically, sending the stock down more than 5%, I believe this decline in growth is only a hiccup in the company's growth story, especially because this is the company's first quarterly decline in same-store sales growth in 11 years.
While many would expect a value investor to jump on the opportunity to purchase a good company after a slip-up, I don't think that Big Five offers much value, at least when compared to a similar company: Cabela's (NYSE: CAB). To start, I believe the two companies are in fact very good comparisons -- they are similar in nearly every regard: multiple to this year's earnings, multiple to next year's earnings, multiple to sales, multiple of enterprise value to EBITDA, balance sheet dynamics (relatively speaking, very close debt/equity ratio), operating margins, etc.
As the story continues, it seems that Cabela's is actually cheaper than Big Five, despite the company's recent fall. Why?
Because Cabela's has a greater book value per share than Big Five: in fact Cabela's only trades at 1.9x book value while Big Five bears a multiple of 5.3x book value. This is especially significant because an acquirer would likely be more interested in Cabela's than Big Five. While this acquirer would be receiving essentially the same earnings, sales, etc. (on a proportion basis), it would receive more assets on a proportion basis if it were to purchase Cabela's. In addition, Cabela's has more money invested (again, speaking in proportions) in stores, property, etc. than Big Five. All this means that Cabela's has the edge over Big Five if a private equity firm was interested in making an acquisition in this space.
While Big Five very well may be undervalued, I don't believe the stock is cheap enough for purchase even after its recent slide. In fact, I'd favor Cabela's if I had to choose one or the other.
While I'm sure some are going to point out that a director sold 10,000 shares the day before this announcement, I wouldn't worry -- the filing with the SEC indicated this sale was part of a prearranged trading plan.
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