Dicks Sporting Goods Inc (DKS), Big 5 Sporting Goods Corporation (BGFV): Which of These 2 Sporting Goods Companies Has the Most Upside?

Lately, we’ve seen Big 5 post greater growth than Dicks Sporting Goods Inc (NYSE:DKS)’s. Last quarter, it produced same-store sales growth of 10%, alongside total revenue growth of 12.70%. You can see that its earnings increased by more than 4,700% in the same period.

The reason for the income improvement – as Big 5 Sporting Goods Corporation (NASDAQ:BGFV) noted in its conference call – was comparable-store sales. Thus it bodes well that the company’s expecting improvements of 6% during 2013 in comparable-store sales, which should also increase margins and return on equity. The numbers suggest that Big 5 is improving much faster than Dick’s.

Which Company Has The Most Upside?

Big 5 is cheaper on a price-to-sales basis, with lower margins and lower returns on equity – which mainly owe to its low revenue-per-store over the last 12 months. While many will view this as a negative, and prefer Dick’s for its efficiency, others take it as an indication that Big 5 has more room to improve.

Currently, Dick’s has margins twice as fat as Big 5 — but Big 5 is growing twice as fast as Dick’s, entirely thanks to its existing stores. If Big 5’s margins can continue to grow through same-store sales improvements, then the stock should benefit from its low price-to-sales ratio relative to Dick’s.

Big 5 Sporting Goods Corporation (NASDAQ:BGFV) has been generating a higher year-over-year profit from revenue during the last two quarters. If it can continue this trend, then Big 5’s P/E ratio will decline, its return on equity will rise, and it will become an investment of choice. Therefore, to me, Big 5 is the better investment choice for those seeking value and improved fundamentals.

The article Which of These 2 Sporting Goods Companies Has the Most Upside? originally appeared on Fool.com and is written by Brian Nichols.

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