Big Lots Could Be in Big Trouble

It’s important to keep in mind that there are no charges or formal accusations to date. However, Big Lots is particularly interesting given how large it is relative to the other companies being examined. Big Lots has a market cap of $1.7 billion and an average daily trading volume of 1.3 million over the last three months.

On December 5, as news of the SEC investigation spreads, trade volume for Big Lots passed its average before noon with shares off about 3.5 percent. The uncertainty raised by speculation is clearly catalyzing a sell off.

CHEAT SHEET Analysis: Are These the People You Want in Charge?

If you have to cheat to win, you clearly aren’t very good at the game. One of the core components of our CHEAT SHEET investing framework asks us to investigate whether A-Level managers are jockeying the horse. No matter how thoroughbred a horse, the jockey is critical to success. Investors who think an executive is up to no good won’t want to leave their money with the company.

Fishman’s actions don’t speak for the entire company but the investor reaction to the news indicates a reasonable level of suspicion. Any fraudulent behavior has yet to be confirmed, but it’s appropriate to proceed cautiously when news like this breaks.

Speculation aside, Big Lots has been fighting a losing battle against economic headwinds and tough competition from Dollar General (NYSE:DG) and Wal-Mart (NYSE:WMT), which are both beating the S&P 500 this year to date while shares of Big Lots have come down over 18 percent in the period.

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