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Big 5 Sporting Goods Corporation (BGFV), Dicks Sporting Goods Inc (DKS), Cabelas Inc (CAB): Are These Three Sports & Outdoors Retailers Good Investment?

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Big 5 Sporting Goods Corporation (NASDAQ:BGFV)Big 5 Sporting Goods Corporation (NASDAQ:BGFV), Dicks Sporting Goods Inc (NYSE:DKS), and Cabelas Inc (NYSE:CAB)‘s are three companies in sporting and outdoor products retail that have been doing quite well lately. However, it´s their long-term prospects that have caught my eye. Trading at less than a third of the industry average valuation and offering annual growth rates above 15%, I’d recommend taking a look at these firms.

A company that knows its business

Big 5 Sporting Goods Corporation (NASDAQ:BGFV) operates a profitable business in the western part of the U.S. Selling a wide array of sporting and outdoors equipment, it offers both established brands and products manufactured especially for its stores. Its unique business model and merchandising strategy allows it to sell quality products at discount prices, providing value to clients while resulting in a wide gross margin. Actually, gross margin has been over 32% for more than 10 consecutive years. Going forward, these surpluses should be one of the main growth drivers.

Trading at under one-third of the industry’s average valuation, at 20 times P/E, while offering strong financials and compelling growth opportunities expected to deliver a mean annual rate of almost 16% over the next five years, I’d recommend buying this stock.

This position is based not only on its consensus beating quarterly results — earnings surpassed consensus estimates by 61.90% last reported quarter, reaching $0.34 per share on the back of a 10% increase in comparable store sales — but also on its expansion and cost reduction plans.

For fiscal 2013, the company targets to open about 15 to 20 new outlets, introduce technological advances in its stores to ameliorate customer service, and reduce its transportation expenses by $800,000 or more on the back of efficiency improvements and a new distribution center in Oregon. If earnings and margins (especially operating and net margins) continue to improve, its valuation should become even more attractive. Relative to the consensus EPS estimate, the firm exchanges at 16 times its projected earnings, a discount of over 30% if compared to the industry mean.

An interesting opportunity to invest in

Dicks Sporting Goods Inc (NYSE:DKS) offers higher margins and return on equity than Big 5 Sporting Goods Corporation (NASDAQ:BGFV), but trades at a higher valuation in relation to its earnings and sales. However, beating the industry averages by a comfortable difference, I would recommend taking a look at this firm.

Its product assortment is very similar to Big 5 Sporting Goods Corporation (NASDAQ:BGFV), although Dicks Sporting Goods Inc (NYSE:DKS) also owns a successful e-commerce segment and a segment leading golf specialty retailer, Golf Galaxy. By leveraging its strong vendor relationships, it can “source overstock and closeout merchandise at substantial discounts, in order to achieve dual objectives of boosting gross margin while offering compelling value to customers.” (Zacks Equity Research)

Already best-in-class, room for improvement is still present as it holds under 10% of the total U.S. market share. Its strong focus on shopping and customer experience makes its model very hard to replicate, and helps it differentiate and keep its competitors behind. In consequence, national expansion plans look promising; planned store openings for 2013 are expected at 40 new locations and long-term targets are even more ambitious — the company expects to at least double its store base in the years to come. Acquisitions have and will continue to play a relevant role as well, as evidenced by the Chick’s Sporting Goods purchase in 2007.

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