Why Big 5 Sporting Goods Corporation Stock Surged 14% Last Month

By Markets Fool.com

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What happened

Shares ofBig 5 Sporting Goods Corp.(NASDAQ: BGFV) were getting a standing ovation in October, climbing 14% according to data from S&P Global Market Intelligence. The retail chain got help from an analyst upgrade on Oct. 6 as the chart below shows.

BGFV data by YCharts

So what

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Deutsche Bankanalyst Mike Baker lifted his rating on the stock from hold to buy and upped his price target aggressively to $16.50 from $10, noting improving merchandise margins and other favorable trends following competitor liquidations.

Indeed, 2016 has been a rough year for the sporting goods industry as Sports Authority declared bankruptcy along with Sport Chalet, Performance Sports, and Golfsmith. Suppliers likeNikeandUnder Armourhave also seen sales growth slow. However, those bankruptcies have been a boon for retailers like Big 5 andDick's Sporting Goods(NYSE: DKS) as both stocks have soared this year as investors anticipate a windfall for them.

Now what

While there is clearly a near-term boost in thinning competition, the long-term story looks bleaker for companies like Dick's and Big 5. E-commerce continues to outgrow physical retail by a wide margin, and key suppliers like Nike and Under Armour are increasingly focused on developing their own direct-to-consumer businesses, which include e-commerce and their own brand stores.

With a few rivals now out of the way, the holiday season may be kind to Big 5, but I'd expect 2017 to be tougher as sporting goods becomes the latest retail sector to fall victim to e-commerce.

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Jeremy Bowman owns shares of Nike and Under Armour (A Shares). The Motley Fool owns shares of and recommends Nike, Under Armour (A Shares), and Under Armour (C Shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.