Big Lots BIG Seasonal Play

In Monday’s Goldman Guide we reviewed the recent successes of some mega cap stocks. Bigger is better right now. Additionally, we mentioned the fact that year end seasonality usually favors small cap stocks. Finally, there is the holiday retail effect.

Today’s featured stock is just outside of the traditional small cap market cap size of $2 billion but ties in all our Guide themes nicely along with the holiday effect. Big Lots, Inc. (NYSE – BIG - $46.76) should be a household name to most.

The discount variety store operates in 48 states and offers products under various merchandising categories, such as food category that includes beverage and grocery, candy and snacks, and specialty foods departments; consumables category, which comprises health and beauty, plastics, paper, chemical, and pet departments; soft home category that consists of fashion bedding, utility bedding, bath, window, decorative textile, and area rugs departments; hard home category, including small appliances, table top, food preparation, stationery, greeting cards, tools, paint, and home maintenance departments; and furniture and home décor category consisting of upholstery, mattress, ready-to-assemble, case goods, home décor, and frames departments. It also provides merchandise under the seasonal category that includes lawn and garden, summer, Christmas, toys, books, sporting goods, and other holiday departments; and electronics and accessories category, including electronics, jewelry, apparel, hosiery, and infant accessories departments.

Below is a one year chart for BIG which illustrates the stock is now trading over the long term 200-day EMA average. Check one.

BIG1-Year Chart, 200-Day EMA

(Source: www.otcmarkets.com)

Gross margins are very impressive for Big Lots at 40%, 10% higher than average comparable firms. We have been all about financial reporting positive results for our stock picks recently and BIG is no exception. The Company has hit or exceeded revenue expectations four straight quarters and EPS three straight quarters.Finally, another positive sign for future growth relative to cash management is the fact the Company had $57 million cash on hand as of August 31.

We believe BIG is a solid play on seasonality. One of our final fundamental checks illustrates a forward P/E of 13x versus a trailing metric of 17x. The stock should shoot back up to the $55 level in Q1 2016.

Have a great day!

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