(By Rich Bieglmeier)
Big Lots Inc's. (
BIG) stock chart says that the discount retailer could be ready to reward investors with a quick move to $42 and change, nearly 8% in a few days to a couple of weeks.
In April, BIG's stock price took a big hit when the company announced comparable sales negative, while management's prior guidance called for an increase of 2 percent to 4 percent. The pessimistic outlook comes as the close-out retailer is transitioning to selling more electronic equipment.
With the ever increasing popularity of big-screen TVs, tablets and other gadgets, iStock believes the move to offer overproduced or discontinued electronic products at close-out prices could prove to be a smart move in a sagging economy.
However, on the day the BIG confessed its same store sins, the stock got clobbered, falling from $45.43 to $ 37.12 from close to open on April 24th and 25th. In Wall Street technical jargon, that's called a gap, down in this case.
As a general rule of thumb, technical analysts expect many gaps to be closed. In English, that big hole $8 without a single share trading will eventually be filled in as the stock trades higher (see chart below). And, that's what iStock believes is happening now.
Since Big Lots fall from grace, the stock price has slowly drifted higher, but first met resistance at its 200-day average, and then its 50-day. However, yesterday, BIG's price managed to get to the better side of its 50-day and a ceiling at $39ish, moving decisively into the gap.
A few additional technical buy signals could help push the stock higher. iStock's chart review shows BIG's short-term moving averages reversing course and heading in the right direction. The 12-day bullishly crossed over the 26-day, and both are on track to bypass the 50-day with another day or two of plus trading. At the same time, Big Lot's MACD line has crossed into positive territory with rising relative strength.
If all the positive technical signs are correct, Big Lots Inc's (BIG) would have to trade up towards resistance around $43 to finish the job of closing the gap.
In the event the technical take doesn't work according to plan, iStock sees some value in BIG's price. Despite management's curve-ball, the stock is trading at 10.73 times next year's consensus earnings estimate of $3.69. Wall Street's forecast represents 12.2% growth form 2012. At one times its earnings growth rate, BIG could trade at $45 in the next 12 to 18 months, a 14% gain from its current price.
Additionally, Big Lots trades at a discount on a price to sales, PEG ratio, and P/E basis relative to its peer group while sporting higher margins with in-line sales growth. iStock sees Big Lots Inc (BIG) as a worthy trade candidate at a reasonable price.