Big 5 Sporting Goods Corporation (NASDAQ:BGFV): Does The Earnings Decline Make It An Underperformer?
When Big 5 Sporting Goods Corporation (NASDAQ:BGFV) announced its most recent earnings (31 December 2017), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Big 5 Sporting Goods performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see BGFV has performed. See our latest analysis for Big 5 Sporting Goods
Was BGFV’s recent earnings decline indicative of a tough track record?
I like to use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique allows me to examine different stocks in a uniform manner using the latest information. For Big 5 Sporting Goods, its latest earnings (trailing twelve month) is US$1.10M, which compared to the prior year’s level, has sunken by a significant -93.45%. Since these figures may be fairly short-term thinking, I’ve calculated an annualized five-year figure for Big 5 Sporting Goods’s earnings, which stands at US$16.55M This doesn’t look much better, since earnings seem to have consistently been falling over the longer term.
Why is this? Let’s examine what’s occurring with margins and whether the rest of the industry is facing the same headwind. Revenue growth over the last couple of years, has been positive, nevertheless earnings growth has been deteriorating. This means Big 5 Sporting Goods has been ramping up expenses, which is hurting margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the US specialty retail industry has been growing, albeit, at a unexciting single-digit rate of 8.22% over the past year, and 6.68% over the previous five years. This means that whatever tailwind the industry is enjoying, Big 5 Sporting Goods has not been able to gain as much as its average peer.
What does this mean?
While past data is useful, it doesn’t tell the whole story. In some cases, companies that face a drawn out period of reduction in earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the recent industry expansion and disruption. I suggest you continue to research Big 5 Sporting Goods to get a better picture of the stock by looking at:
1. Financial Health: Is BGFV’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
