As I always do, I added yet another stock to the portfolio at the beginning of the month. That being said I did only add a half position at first, then added the other half on July 10th, then added more just recently after their last earnings report. My latest addition was Big Five Sporting Goods (BGFV). 

First a quick run down about the company:

Big 5 Sporting Goods Corporation operates as a sporting goods retailer in the western United States. The company offers athletic shoes, apparel, and accessories, as well as a selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, winter and summer recreation, and roller sports. It also provides private label items, such as shoes, apparel, camping equipment, fishing supplies, and snow sport equipment. The company sells private label merchandise under its own trademarks comprising Golden Bear, Harsh, Pacifica, and Rugged Exposure; and licensed trademarks, including Beach Feet, Bearpaw, Body Glove, Morrow, and The Realm. As of January 1, 2017, it operated 432 stores and an e-commerce platform under the Big 5 Sporting Goods name. Big 5 Sporting Goods Corporation was founded in 1955 and is headquartered in El Segundo, California.
--Taken from Finviz.com

 When I research a company for a potential purchase I typically look for certain fundamentals first to see if it is a posisble value, then I read through the most recent 10-K and begin to look at the following:

1. Item 1A - Risk Factors
2. Item 3 - Legal Proceedings
3. Item 6 - Selected Financial Data
4. Item 7 - Management Discussion & Analysis

If I go through the 10-K and still see value I dig a bit deeper to see if it passes my Big Ten analysis (will be described later).

This post is about what I found in my research on Big Five Sporting Goods.

The Initial Analysis

• Item 1A- Risk Factors
  As you read through BGFV's risk factors there are a few that really pop out. The first would be the big competitors that rule the sporting goods world. Add stores like Wal-mart and Target to the list, then bring the Amazon name up and you see that there is some competition that may heed trouble. 
  The second major risk factor comes from price reduction. This is where Amazon (AMZN) becomes the biggest worry as they continue to drive down the price of everything (even groceries now) and you need to be aware as to what effects this may have on the margin. This is the same worry I have for Target (TGT) but I own that as well.
  My biggest concern about BGFV though would be the fact that they work out of a single distribution center. If there are problems with the center it could spell big problems with the products. No products equals no profit. Obviously this is looking at the worst case scenario, but that is what this analysis is all about.
• Item 3 - Legal Proceedings
  There are no significant legal proceedings.
• Item 6 - Selected Financial Data
  When I do a quick glance at the data here are some things that really jump out to me:
  A) Sales have increased from 2012-2016
  B) Same Store Sales increased 4 out of the last 5 years
  C) Store number has decreased from 2014-2017
  (I do not necessarily see this as a bad thing. BGFV has made some good moves in this area to fix a problem they had by expanding too quickly in 2014).
  D) Profit Margin was relatively flat from 2012-2016
  E) Long Term Debt decreased from 57 million to ~12 million. 
• Item 7 - Management Discussion & Analysis
  When I read through this section I typically look for honesty about the changes, both good and bad, that occurred during the previous year. One of the things that pops up for me with BGFV is the fact that the management noted the EPS increase was due to a decrease in print ad costs. Why is this important? This shows that management has decreased a cost that actually makes sense in today's retail world. Sometimes common sense decisions are the most beneficial. 
  Also it is important to note that the company admits that they have always strived for "controlled growth" but made a mistake in 2014 when they opened 16 new stores. This makes me less pessimistic about the closure of ten stores this year, since it really brought the company back to what may be the proper number of stores. When you are wrong you are wrong, and it is nice to see management taking control of it quickly.
  Finally I always try to find a potential pit fall that management honestly admits and brings up in the discussion. One for BGFV is the minimum wage in California. With most stores in the state it could really hurt the company if the minimum wage is raised by significant amounts. Is this enough to be the end of the company? Of course not, but EPS could take a major hit.

So after I look through all this information I decide whether or not to dig in any further. As you can see, there isn't a lot of red flags that are specific to BGFV. Yes there is a scare right now in the retail sector, and yes BGFV has had a big run this year (up almost 40% from last June), but that doesn't mean this isn't a buy. I will look further.

My Big Ten:
(aka: 10 Numbers I look at)

1. Long Term Debt (YoY)-
   Decrease from 54.8 to 10 million (81%)
2. Ratio - 
   Current - 1.90
   Quick - 0.20 (Does not inlcude inventory!)
3. Interest Coverage - 33.50
4. Revenue Growth per Share -
   10 yr - 2.0%
   5 yr - 2.4%
   1 yr - 1.8%
5. FCF (YoY) - Increase of 776k (9.8%)
6. Dividend Yield - 4.90%
7. Dividend Payout Ratio - 63%
8. 3 yr Average Buyback Ratio - 0.60
9. 5 yr Dividend Growth Rate - 11%
10. Insider Purchases/Sells - 
    12 months - 54 buys/123 sells
    6 months - 23 buys/16 sells
    3 months - 11 buys/6 sells

 When I take a look my so-called "Big Ten" I really don't see much that I dislike. BGFV has been a consistent profit producer over the past ten years and while the growth has been nothing to write home about it is tough to discount a consistent money maker.

Not only am I a big fan of companies that make money I am a huge fan of those that like to give some back to shareholders. With a 5 year div. growth rate of 11% and a payout ratio that isn't in a range that I wouldn't consider concerning, BGFV looks like a nice stable place to park some of my money and wait for returns. Also when you consider the amount of money slotted for buybacks, I believe the company will buy soon to increase ESP data (especially after this last sell off). 

Finally what I really love is that BFF is being pro-active about the state of the industry and quickly lowering debt. I assume this is due to what they see as a near term reduction in net profit or same store sales (the latter was forecasted in this last quarterly report).  

 Conclusion:

Shouldn't be hard to figure out that I think BGFV is a buy at these levels. I mean I even titled the post showing I added it! That being said I think that if you want a stock with growth potential then you may want to look elsewhere. BGFV for the time being is nothing but a place where I can park a small portion of my portfolio and collect my dividend (almost 5% now) while waiting for the big hedgies to run this price back up to a reasonable P/E ratio.