Big Lots, Inc. (BIG): Griffen Upgrade Gives This Stock Wings

Shares of closeout retailer Big Lots, Inc. (NYSE:BIG) are flying 3.5% higher in midday trading. And yet, so far as I can tell, the only reasons for the surge are an analyst upgrade to “buy” and a price target higher than what the shares fetch now.

Actually, make that an ill-considered upgrade to buy from an analyst you’ve probably never heard of before and a price target far higher than what the shares are worth.

Big Lots, Inc.

Let’s tackle those issues one at a time. If I told you that some guy you’d never heard of before thought you (not he) should buy shares of Big Lots, Inc. (NYSE:BIG), would you give that recommendation much weight? Then call me a skeptic, but I’m not sure an upgrade to “buy” from an analyst called Griffen Securities (the name cited in an upgrade report on flyonthewall.com today) deserves any particular weight, either.

Now for the price target. Big Lots, Inc. (NYSE:BIG) costs $35 and change today, so a move to $45 suggests the potential for a 27% profit in the stock. I can see how that would grab investors’ attention, sure. But that doesn’t mean the target is realistic.

Consider: Priced at 12 times earnings, Big Lots, Inc. (NYSE:BIG)’ valuation already looks like a bit of a stretch relative to the 10% long-term growth estimates Wall Street analysts have assigned it. When you notice further that based on its cash flow statements, Big Lots is currently only generating about $0.85 in real cash profit for every $1 it claims to be “earning” under GAAP, the magnitude of the overvaluation only grows. And none of this is even factoring Big Lots’ $110 million net debt load into the equation. With that number added in, I get an enterprise-value-to-free-cash-flow ratio of 14 — which is still only growing at 10% a year.

Foolish takeaway
I won’t say Big Lots, Inc. (NYSE:BIG) is the most overpriced stock on the market today, but 14 times free cash flow is hardly a cheap price to pay for a mere 10% grower. Therefore, even if you think the stock can hold on to its current valuation, it’s hard to make a strong argument for (over)paying even more for the stock in 12 months’ time.

Long story short: Griffen Securities’ buy rating on Big Lots doesn’t look much more realistic than the winged, eagle-headed lion of lore.

The article Griffen Upgrade Gives Big Lots Stock Wings originally appeared on Fool.com and is written by Rich Smith.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Big Lots.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!