Galyan's Trading (NASDAQ:GLYN) got its start as a small grocer in the Indianapolis area. I know this because I used to shop at one. (Well, ride in the cart at one is more accurate.) The owner was an avid outdoorsman and opened up what I remember as Galyan's Trading Post in the 1950s.

When I used to go there in the 1970s, the Trading Post was still pretty much the same as when it started. Everything about the place was cool. It was built to resemble an old fort, and sold all sorts of outdoors stuff you couldn't get anywhere else in the area. Galyans had everything from the latest in green, sparkle-painted boats to hunting gear. It even sported the prerequisite taxidermy head mounts on the walls and a big bear in the center of the store.

Over the years, though, the company struggled with its identity. It sold boats sporadically, and the store's interior and merchandise changed from one year to the next. This wasn't surprising given that the store wasn't located near any of the activities it sold equipment for. But, as it turned out, folks in Central Indiana liked to leave Central Indiana every once in a while, and they liked taking Galyan's sporting goods with them.

Eventually the retailer built a big, modern store near a mall, and it was an instant hit. The store was always crowded, and it never seemed to matter how much it marked stuff up -- it had cornered the Indianapolis sporting goods market. Galyan's continued to expand from there, and built a few more stores, including one in Columbus, Ohio, which caught the attention of Limited Brands (NYSE:LTD) in 1995. Limited subsequently purchased Galyans.

Many of us devoted Galyan's shoppers speculated that under Limited's ownership, the company would lose its identity entirely. To Limited's credit, that turned out not to be true. For the most part, Limited left Galyan's formula alone and simply replicated it, adding about a dozen new stores throughout the country.

Several years ago, Galyan's management bought the company back. It still has a good formula. It's managed to stay true to its roots by offering the top-of-the-line, hardcore equipment that brings the respect of people who are downright religious about their hobbies, while mixing in the latest in workout fashion apparel. Today, Galyan's faces the age-old dilemma of staying small, or growing at all costs.

The sporting goods market is rife with failures. Many a company has tried to grow too big, too fast. Remember Jumbo Sports? It's not so jumbo now. And the competition is steep from companies such as Dick's (NYSE:DKS), The Sports Authority (NYSE:TSA), Big 5 (NASDAQ:BGFV), and Sport Chalet (NASDAQ:SPCH).

Galyan's released fourth-quarter earnings yesterday. Earnings fell 40% as a result of higher expenses and inventory markdowns, even as revenues increased 17% from a year earlier. Despite the less-than-stellar numbers, however, investors found something to get excited about. The stock has jumped 20% since Wednesday's close, though, shares are still 42% below the retailer's 52-week high.

Galyan's Trading is still a little fish in the big lake of the sporting goods market. The company opened nine stores in 2003, but says it doesn't plan to open as many new stores going forward. That way it can focus on the ones it already has. Sounds like a wise plan. Too much growth too fast in this market and the company could end up like Jumbo. Unfortunately, the plan isn't wise enough to justify the recent jump in price, or a P/E of 57.

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Motley Fool contributor Mark Mahorney doesn't own shares of any companies mentioned.