Friday Losers: Big Five, Conceptus and Grand Canton Education

David Sterman's picture

Friday, July 9, 2010 - 11:08am

by David Sterman

Among the biggest losers in Friday's early trading are Big Five Sporting Goods (Nasdaq: BGFV), Conceptus (Nasdaq: CPTS) and Grand Canton Education (Nasdaq: LOPE).

Top Percentage Losers -- Friday, July 9, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Loss
52-Week High 52-Week Low
(Nasdaq: CPTS)
$12.41 -21.4% $22.44 $12.25
Big Five Sporting Goods (Nasdaq: BGFV) $10.98 -8.9% $18.39 $10.22
Canyon Education
(Nasdaq: LOPE)
$21.00 -6.2% $28.46 $15.69

*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 11:05AM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

Big Five Stuck in Neutral

As we chronicled in our look at the retail sector yesterday, investors have become leery of any consumer-related plays. The broader retail indexes are off -25% from their peak, and some stocks are off closer to -40% from their highs. Although retail sales are likely to start rebounding at a moderate pace in coming quarters, we’re not there yet, if results from Big Five Sporting Goods (Nasdaq: BGFV) are any guide.

Thursday evening, management pre-announced tepid second-quarter results. Same store sales were flat compared to a year ago, as are total sales and profits. That’s good for a -9% loss in the stock, right down to its 52-week low. Management noted that April and June were fairly strong, but May was fairly weak. Needham’s Sean MacGowan thinks that shouldn’t be overlooked: “We believe a good part of the sales ‘miss’ in 2Q was the fact that weather in the month of May was unusually cool, deterring sales of summer-related products. With more normal weather setting in for 3Q, we believe same-store sales will be positive again in 3Q,” he opined.

Action to Take --> As noted in yesterday’s retail article, this is precisely the kind of business model that will -- eventually -- show robust profit gains on modest sales gains. Analysts at Needham think sales will grow +8% next year while profits will grow +27%. Even if they are too aggressive and profit grows at a much more modest clip, shares still look attractive at less than 10 times this year’s profit forecast. If they’re right and Big Five can earn $1.50 a share next year, then the forward multiple on next year’s profits is below eight. This is the kind of retailer you need to own and simply wait out the flat spot in sales.


Fewer Elective Medical Procedures

One of the byproducts of a slowing economy is a drop in spending on health care that is viewed as non-essential. This is starting to eat into sales for companies like Conceptus (Nasdaq: CPTS), which makes a non-surgical permanent contraceptive. It’s a pricey solution compared to birth control pills and is seen as dispensable when times are tough. Conceptus just sharply lowered sales and profit forecasts, causing shares to tumble more than -20%. For the full year, management previously thought sales would grow +25%, but +10% growth is now more likely, and all of that growth is coming from international sales.

For investors, these kinds of reports can be tricky. Is it truly a weak economy, or simply a sign that the company’s target markets are saturated? Whenever a company expresses the need to re-educate “physicians on the superior clinical results” of its product, as Conceptus has, you should wonder if interest has peaked.

Action to Take --> It’s possible that the sales weakness is more of a function of an ineffective sales force than of market saturation. Even if that’s the case, it could be a few quarters before any fresh growth appears. Shares are too cheap to short now, but offer little upside in the near-term.


More Troubles for Online Education

A bad summer for online education firms just keeps getting worse. In late June, the Senate began investigating whether for-profit institutions such as Apollo Group (Nasdaq: APOL) were a worthwhile use of taxpayer funds for student loans when their students have higher-than-average loan default rates, and in some instances, offer academic benefits of questionable value.

Now the Department of Education is looking into these issues as well, according to an 8-K fling by Grand Canyon Education (Nasdaq: LOPE) Thursday evening. Shares are down -6% on Friday, and other online educators are down by a lesser amount.

Action to Take --> All this negative attention can’t be good. Prospective students may be hesitant to enroll while these clouds linger, and prospective employers may be less inclined to hire graduates of these programs. Analysts expect Grand Canyon’s revenues to rise +50% this year and another +30% in 2011, but that’s starting to look a bit unrealistic in light of these pressures. Shares have steadily fallen and could have further room to fall if estimates are cut.

David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.