Big 5 Sporting Goods vs. Sportsman’s Warehouse: Which Stock is a Better Buy?

Big 5 Sporting Goods Corporation (BGFV) in El Segundo, Calif., operates as a sporting goods retailer in the western United States. The company’s products include athletic shoes, apparel, and accessories. It operates 430 stores and an e-commerce platform. In comparison, Sportsman’s Warehouse Holdings, Inc. (SPWH) in Midvale, Utah, operates as an outdoor sporting goods retailer in the United States. It offers camping, clothing, fishing, and footwear products. The company operates through 112 stores in 27 states.

Concerns surrounding the spread of the COVID-19 omicron variant, high inflation, and supply chain crisis have kept the markets volatile lately. However, several retail companies have strengthened their online presence, and stores are also witnessing increasing foot traffic amid the holiday season. In addition, most retailers are dealing with inflation by passing on higher costs to their customers through price hikes. According to a Research and Markets report, the global retail market is expected to grow at a 7.7% CAGR by 2025. Therefore, both BGFV and SPWH should benefit.

BGFV’s shares have gained 11.2% in price over the past nine months, while SPWH has negative returns. Also, BGFV’s 55.1% gains over the past year are significantly higher than SPWH’s negative returns. Furthermore, BGFV is the clear winner with 79.4% gains versus SPWH’s negative returns in terms of year-to-date performance.

Click here to checkout our Retail Industry Report

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On November 2, 2021, Steven G. Miller, BGFV’s Chairman, President, and CEO, said, “As we continue to manage through the widespread supply chain disruptions and labor challenges impacting the retail industry, we feel well positioned to produce fourth quarter results that significantly exceed pre-pandemic levels.”

On December 8, 2021, Jon Barker, SPWH’s CEO, said, “Despite a very difficult comparison and the terminated merger agreement with the Great Outdoors Group, Inc., our team has been able to achieve incredible results in the quarter and year-to-date periods.”

Recent Financial Results

BGFV’s net sales decreased 5% year-over-year to $35.70 billion for its fiscal third quarter, ended October 3, 2021. The company’s operating income declined 15.2% year-over-year to $32.83 million, while its net income came in at $24.13 million, representing a 15% year-over-year decrease. Also, its EPS was  $1.07, down 18.3% year-over-year.

SPWH’s net sales increased 4% year-over-year to $401 million for its fiscal third quarter ended October 30, 2021. However, its adjusted EBITDA declined 21.2% year-over-year to $39.30 million, while its adjusted net income came in at $22.70 million, representing a 27.9% year-over-year decrease. Also, its adjusted EPS was  $0.51, down 28.2% year-over-year.

Past and Expected Financial Performance

BGFV’s revenue and EBITDA have grown at CAGRs of 6.2% and 102%, respectively, over the past three years. Analysts expect BGFV’s revenue to decrease 7.3% in the current quarter but increase 11.2% in the current year. The company’s EPS is expected to decline 26.5% in the current quarter but grow 74% in the current year. Furthermore, its EPS is expected to decrease at a rate of 6.5% per annum over the next five years.

In comparison, SPWH’s revenue and EBITDA have grown at CAGRs of 21.6% and 29.9%, respectively, over the past three years. The company’s revenue is expected to decrease 9.6% in the current quarter but increase 2.4% in the current year. Its EPS is expected to decline 49.3% in the current quarter and 28.3% in the current year. Also, SPWH’s EPS is expected to grow at a 20.7% rate per annum over the next five years.

Profitability

SPWH’s trailing-12-month revenue is 1.30 times what BGFV generates. However, BGFV is more profitable, with gross profit  and net income margins of 36.87% and 8.78%, respectively,  compared to SPWH’s 32.44% and 5.21%.Furthermore, BGFV’s respective 41.99%, 11.88%, and 15.56% ROE, ROA, and ROTC are higher than SPWH’s 37.14%, 9.78%, and 13.94%.

Valuation

In terms of forward non-GAAP P/E, SPWH is currently trading at 7.18x, which is 67.8% higher than BGFV’s 4.28x. And SPWH’s 6.29x forward EV/EBITDA ratio is 59.6% higher than BGFV’s 3.94x.

So, BGFV is relatively affordable here.

POWR Ratings

BGFV has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In comparison, SPWH has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

BGFV has a B grade for Quality. This is justified given BGFV’s 8.78% trailing-12-month net income margin, which is 33.8% higher than the 6.56% industry average. In contrast, SPWH has a Quality grade of C, which is in sync with its 5.21% trailing-12-month net income margin, which is 20.6% lower than the 6.56% industry average.

Also, BGFV has an A grade for Value, which is consistent with its 4.23x forward non-GAAP P/E, which is 70.6% lower than the 14.37x industry average. However, SPWH has a B grade for Value.

Of the 37 stocks in the B-rated Athletics & Recreation industry, BGFV is ranked #9. In comparison, SPWH is ranked #25.

Beyond what I have stated above, we have also rated the stocks for Sentiment, Growth, Stability, and Momentum. Click here to view all the BGFV Ratings. Also, get all the SPWH ratings here.

The Winner

The retail industry is expected to grow significantly during the holiday season. While both BGFV and SPWH are expected to gain, we think it is better to bet on BGFV now because of its lower valuation and higher profitability.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Athletics & Recreation industry here.

Click here to checkout our Retail Industry Report 

SPWH shares were trading at $11.43 per share on Thursday morning, down $0.06 (-0.52%). Year-to-date, SPWH has declined -34.87%, versus a 27.72% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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