Big Lots: Uncharted Depths And High Trading Activity — Is A Buy-The-Dip Moment Lurking?

On Nov. 9, chain discount store operator Big Lots Inc‘s BIG stock recorded one of the biggest drops in its price, marking a 10.69% drop over the previous day. The day’s trading saw BIG stock touch all-time-lows of $3.68, while trading volume remained robust and above average. Volume for BIG stood at 1.94 million for the day, against an average of 1.68 million.

Could this be a buy-the-dip opportunity for investors in retail stocks? BIG does appear undervalued relative to its peers Dollar Tree DLTR, Dollar General DG, Best Buy BBY, Target TGT and Costco COST. BIG trades at Price/Sales rati o of just 0.02 compared peers as can be seen below:

Price/Sales (TTM)

Goldman Sachs maintains Sell rating on Big Lots, and recently lowered their price target to $4 (from $5). Consensus rating for the stock stands at a Hold based on 9 analyst ratings over the past 90 days.

With inflation affecting retail spending for the most companies in the retail space, could the decline in BIG stock just be systemic in nature. BIG’s, along with those of its peers listed above, have with delivered negative returns over the past year. The retail sector’s barometer, the SPDR S&P Retail ETF XRT is also down on a 6-month, 1-year and YTD basis.

Also Read: Amazon Vs. Walmart: Legacy Retailer A Clear Winner Over Past Year But Is A Flip Coming?

With the holiday season coming up, Big Lots is already in the process of refreshing its product line-up and announcing promotional and bargain deals. These should help boost sales into the final quarter of 2023. The company is also working towards cutting in SG&A costs by $100 million by the end of 2023, and by double that amount next year.

Big Lots Faces Macro Tailwinds

While attempts at improving profitability by boosting sales and reducing costs are underway, the company also has certain macroeconomic catalysts lined up in its favor, such as stabilizing inflation and a pickup in retail sales (especially with the holiday season coming up). These could help reverse the trend for BIG stock.

The inflation rate in the U.S. economy appears to be stabilizing. Rising inflation is often a headwind to the retail sector. The calm seen in September is critical to boosting consumer confidence.

Strength in retail sales is another key catalyst that could buoy BIG stock. Retail sales topped expectations and recorded a 3.75% growth in September year-over-year. The reading highlighted strong resilience of consumers despite surging inflation and elevated interest rates.

Q3 Earnings Ahead

Big Lots is scheduled to report Q3 earnings on Nov. 30. Financial numbers for the third quarter could better address the investor dilemma over BIG currently being a buy-the-dip opportunity or not.

BIG Stock Price Action: BIG stock closed the trading day of Nov. 9 at $3.76. Post-market trading saw the stock slide further down to $3.74 by 7:33 PM ET.

Now Read: The Latest Analyst Ratings for Big Lots