Simple Concepts Research Group

Here’s Why Investors Think Big Lots (BIG) Stock Is Undervalued

by | Oct 27, 2021 | Stock Picks

Big Lots (BIG) Company Overview & Stock Price Forecast

This article provides a brief analysis and stock rating for Big Lots (BIG) including an updated stock price target. Additional data on the company’s earnings yield, price/earnings ratio, return on invested capital and YTD performance are discussed as well.

Big Lots Fundamentals

BIG Stock Rating

Stock Price Target: $62.81

In the section below, we discuss the earnings yield, P/E, return on invested capital and YTD performance for Big Lots in comparison to the General Retail industry and the S&P 500.

Big Lots is a Small Cap company with a Market Cap of $1.48B.

How are investors using Big Lots earnings yield to assess the company?

Big Lots (BIG stock)_ Earnings Yield in Comparison to the General Retail Industry, S&P 500 and 10 Year Treasury Rate

The earnings yield is used to show the percentage of a company’s earnings per share. Investors typically use earnings yield to determine which assets are underpriced or overpriced relative to other variables, like sector, industry or bond yields. Simply put, the earnings yield of a company can be used to assess how expensive a company is in relation to the earnings that are generated. When valuing companies, the SIS Research Group does not utilize the inverse P/E ratio to calculate the earnings yield. Instead, we use an adjusted earning yield calculation to capture variation amongst companies (i.e. debt and tax rates).

The current earnings yield for Big Lots is 43.10%%, in comparison to 3.49% for the S&P 500 and 1.66% for the 10-year treasury bond. The median earnings yield for the General Retail industry is 6.80%.

What does Big Lots Price-to-Earnings Ratio (P/E) tell investors about the company?

Big Lots (BIG stock)_ Price-to-Earnings, Price-to-Sales and Price-to-Book Value in Comparison to the General Retail Industry & S&P 500 (1)

The price-to-earnings ratio (P/E) is a relatively popular metric used by investors and analysts for valuing a company’s stock. The P/E ratio can be used to show how a stock’s valuation compares to other companies and the total market. Investors use the P/E ratio to determine what the market is willing to pay today based on a company’s past or future earnings. A high P/E ratio could mean that a stock’s price is too high relative to earnings, which could be a signal that a stock is currently overvalued. In turn, a low P/E ratio could indicate that a company’s current stock price is low relative to earnings. 

Big Lots is currently trading at a P/E of 6.49. The P/E for the General Retail industry is 15.73 and the P/E for the S&P 500 is 28.63.

What is the current Price-to-Sales Ratio (P/S) for Big Lots?

The Price-to-Sales Ratio (P/S) looks at a company’s market cap and revenue to determine valuation. The P/S ratio is calculated by taking a company’s market cap and dividing by the total sales or revenue. The P/S ratio gives an idea of how much the market values every dollar of a company’s sales and can be effective in valuing unprofitable growth stocks or companies that are currently undergoing special situations or challenges. A lower the P/S ratio can be an indicator of good value.

Big Lots is currently trading at a P/S of 0.28. The P/S for the General Retail industry is 0.81 and the P/S for the S&P 500 is 3.11.

How does Big Lots Price-to-Book Ratio (P/B) compare to the General Retail industry?

Price-to-book value (P/B) is the ratio of the market value of a company’s shares divided by its book value of equity (the value of it’s assets on the books). The book value is the difference between the book value of assets and liabilities. Typically, investors use the P/B ratio to assess if a stock is valued properly (a value of one means that the stock price is trading in line with the book value of the company). A company with a high P/B ratio could mean the stock price is overvalued as well as the converse.

Big Lots P/B ratio is 1.27. The P/B for the General Retail industry is 5.43 and the P/B for the S&P 500 is 4.84.

How attractive is Big Lots Return on Invested Capital (ROIC) to investors?

Big Lots (BIG)_ Return on Invested Capital in Comparison to the General Retail Industry and the S&P 500

Investors use the return on invested capital (ROIC) to assess how efficient a company is at turning capital into profits. The ROIC is the amount of money a company makes on it’s investments that is above the average cost of debt and equity.

Investors can use the ROIC to provide context for metrics like the (P/E) ratio. For instance, when used in isolation a low P/E ratio could suggest a company is oversold but the decline could be because a company is no longer generating value for shareholders. Conversely, companies that consistently generate high rates of ROIC can plausibly trade at a premium compared to other stocks, even if their P/E ratios are high.

Big Lots ROIC is currently 9.48% in comparison to 14.67% for the General Retail industry and 8.60% for the S&P 500.

What is Big Lots YTD Performance in comparison to its industry and the total market?

The year-to-date (YTD) performance is the amount of profit/loss realized by a stock since the first trading day of the current calendar year. 

The YTD performance for Big Lots is 4.10%. The General Retail industry has a YTD performance of 26.16% in comparison to the YTD S&P 500 performance of 21.95%.

Big Lots (BIG stock)_ YTD Performance in Comparison to the General Retail Industry and the S&P 500

Recent Financial Results

  • Reported net income of $37.7M, or $1.09 per diluted share, for the Q2 2021 (in comparison to Q2 2020 of $452.0M and $11.29 per diluted share)
  • Net sales Q2 2021 totaled $1,457 million, an 11.4% decrease compared to $1,644 million for the same period last year
  • $293M cash and cash equivalents coupled with no long-term debt, compared to $899M of cash $43M of long-term debt in Q2 2020
  • Invested $153M to repurchase 2.4M common shares at an average cost of $63.57
    • The company has utilized $403M of $500M authorized for repurchase of approximately 7.3M shares at an average cost of $55.18

Stock Price Target: $62.81

Company Overview

BIG Stock Rating

Big Lots is a retailed in the US that offers products under various merchandise categories, such as furniture, fashion and specialty foods departments. It also provides health, beauty and cosmetics, and small appliances and jewelry.

Big Lots currently operates over 1,400 in 47 states and an e-commerce platform. Big Lots was founded in 1967 and is headquartered in Columbus, Ohio. The current CEO is Bruce Thorn.

Be sure to add Big Lots (BIG) to your Watch List and if you haven’t done so already, check in on the performance of our Current Portfolio. Keep it simple and always do your due diligence.

This material is provided for informational purposes only and is not financial advice. The information contained herein should not solely be used for the formation of an investment decision, whether you are a long term or short term investor.