Big 5 Sporting Goods

01/09/2015 7:00 am EST


Bret Jensen

Editor, Biotech Gems

One of the important traits of a good contrarian investor is recognizing when a company is going through temporary problems, explains Bret Jensen, editor Small Cap Gems.

Big 5 Sporting Goods (BGFV) is our top conservative idea for the coming year. The company operates 429 sporting goods stores in the Western United States and has an average store footprint of approximately 11,000 square feet.

When the company reported quarterly earnings in early 2014, its results largely met top and bottom line expectations.

But comp store sales fell 7.9% year-over-year because in the year prior sales rose in reaction to proposed restrictions on gun and ammo sales in the wake of the tragedy in Newton, Ct.

The equity dropped some 25% in the aftermath of the poorly received report and continued to slide in the months before we added it to the portfolio. As importantly, the stock was selling at roughly 60% of its level of just the summer prior.

With the end of 2014, same store comps are now beyond those affected by the temporary effects of the surge in firearm and ammo sales. Basically, the stock is back to normal and is in growth mode again, posting roughly a 30% gain in the fourth quarter of 2014.

Over the next 12 months, the stock should recover at least half of its losses from its highs two summers ago. This midpoint would represent upside to $17 to $18 a share.

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