Big 5 Sporting Goods (NASDAQ:BGFV) was one of the best-performing stocks in the market last Wednesday. The market clearly liked Big 5's earnings, and while this is great news for the company, investors might want to be cautious about investing in its peers.
Understanding consistency and trends for sport retailers
Over the last year, Big 5 has fundamentally improved at a superior rate compared to its peers. As a result, its stock has more than doubled in the last 12 months.
Yet one trend that we've seen during this period is consistency throughout the space. This consistency has affected Big 5, whether it be for the good or bad. Back in July, Big 5's stock fell double digits after it reported earnings. In the two months that followed, it lost 35% of its value as both Dick's (NYSE:DKS) and Hibbet (NASDAQ:HIBB) reported disappointing results.
Therefore, investors must realize that some of Big 5's 15% post-earnings gain on Wednesday was actually tied to low expectations and poor performance since the company's July quarter.
With that said, Big 5's quarter was good, but nothing special. The company saw total revenue growth of just 2.9% year over year, creating sales of $259.1 million. This actually missed estimates by $5.61 million while the company slightly beat earnings-per-share expectations.
Moreover, the company saw same-store sales growth of 1.4%, significantly lower than the 4.4% growth it saw in the quarter prior.
Thankfully for Big 5 investors, the stock trades at just 0.37 times sales and 13 times forward earnings. In comparison, Dick's trades at 1.10 times sales and 17 times next year's earnings, while Hibbett trades at 1.79 times sales and 18.6 times next year's earnings. Hence, Big 5 is considerably cheaper than either of its peers, which also explains its post-earnings gains.
This pattern could be problematic
The problem with Big 5's earnings is not in relation to the company itself, but rather a sign of what may come for its peers.
Both Dick's and Hibbett will report earnings in the next month, and both companies are seeing significantly less same-store sales growth. As I said, Big 5 saw same-store sales growth of 4.4% in its last quarter, consistent with the company's full-year outlook.
Dick's saw same-store sales growth of just 1.2% in its last quarter, and Hibbett's increased just 0.3%! Over the last four quarters, Big 5's outperformance in same-store sales has been consistent. As a result, Big 5 has seen its margins rise rapidly.
With that said, if the pattern repeats itself, both Dick's and Hibbett are in great risk of seeing a decline in same-store sales performance. Last quarter, Dick's fell far short of same-store sales growth guidance of 4%, thus its stock fell 5%.
Also, Hibbett is guiding for full-year same-store sales growth of 2%. After two break-even quarters, the company is far short of this goal. Hence, Hibbett might even revise guidance lower in its upcoming quarter.
In retrospect, Big 5's poor quarterly performance in July was amplified by the weakness from both Dick's and Hibbett. However, in this quarter, peer weakness might actually reflect as company strength for Big 5. Thus, Big 5 could see further stock gains if its peers perform poorly.
With that said, Big 5 remains the cheapest of the bunch and yet it is also growing the fastest. Therefore, Big 5 remains a good value investment. However, if we connect the dots, then this quarter could be tough for its peers, and this is something to consider if you hold either of the two stocks.
Fool contributor Brian Nichols owns Big 5. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.