Why You Shouldn't Jump On Columbia's Mountain

By Will Ashworth | February 10, 2009 AAA

I've long admired the entrepreneurial spirit of Gertrude and Tim Boyle, the mother/son team that took over Columbia Sportswear (Nasdaq:COLM) in 1970 when Gertrude's husband died suddenly from a heart attack. Taking a floundering business and building it into a leading outdoor sportswear brand, you can't help but appreciate their efforts. Owning several parkas over the years made by Columbia, if anyone were to be an evangelist for the company, it would be me. Alas, that's not the direction of this article. Instead, I'll point out why you should avoid investing in the corporation.

IN PICTURES: 7 Forehead-Slapping Stock Blunders

What Have You Done For Me Lately?
Examine Columbia's financial statements for the last 10 years and you'll find commendable growth rates in both revenues and income from operations. At the end of 1998, its revenues were $427.3 million, growing 11.8% annually to $1.3 billion this past year. It was able to grow income from operations 7.8% per annum. Dig deeper, however, and you'll find a company that's been skiing downhill for some time.

Breaking down the numbers into five-year increments, you see two completely different companies. In the years 1999 through 2003, it generated annual returns of 17.4% for revenues and 27.8% for income from operations. Flip ahead to the past five years and you have a business crippled by stiff competition and poor management decisions, resulting in just 6.4% annual growth in revenues and an annual decline of 9% in income from operations. Not the kind of growth to hang your hat on, that's for sure. (Learn more in our Financial Statements Tutorial.)

Stock Price Appears Low
Between 2004 and 2008, Columbia's stock traded at between $40 and $60, holding its value quite well compared with the indexes. In late 2008 it traded below $28, a price unseen since the second half of 2002. A 10-year historical account of Columbia's key valuation metrics shows that its average P/E ratio for an entire year varied between 12.7 and 16.3. Today, it trades around 12.5 times estimated 2010 earnings. Quite low, until you compare it to competitors:

Forward Price To Earnings



Company
Forward P/E

Nike (NYSE:NKE)
11.5

Timberland (NYSE:TBL)
15.8

VF Corp. (NYSE:VFC)
10.3

Wolverine World Wide (NYSE:WWW)
9.6

Source: Thomson Financial Networks, as of market close February 6, 2009.

With the exception of Timberland, each of those companies is currently trading at a lower multiple than Columbia. Now compare their current return on assets. Once again, only Timberland does worse, returning 6.4% versus Columbia's 7.8%. Both Nike and Wolverine produce double-digit returns of 13% and 13.2%, respectively. Frankly, I have no idea why Timberland gets a better valuation despite poorer results.

Overpaid And Under-Producing
CEO Tim Boyle owns 43.5% of Columbia's stock, worth approximately $450 million. Boyle made just shy of $1.7 million in compensation in 2007. Compare this with Morningstar (Nasdaq:MORN) founder and CEO Joe Mansueto. He owns 61% of Morningstar's shares, worth approximately $1 billion at today's prices. His total compensation in 2007 was just $107,020. Morningstar's proxy statement reads, "In consideration of his status as our principal shareholder, Joe Mansueto believes his compensation as our chief executive officer should be realized primarily through appreciation in the long-term value of our common stock. Accordingly, at his request, he doesn't participate in our equity or cash-based incentive programs. In addition, since resuming his role as our chief executive officer in 2000, his annual salary has been fixed at $100,000."

The Final Word
Granted, Morningstar's annual revenues are only 38% those of Columbia; nonetheless, it appears one man understands executive compensation and the other doesn't. Mansueto must be an Obama fan. In the end, Columbia is a company living in the past. Do yourself a favor and find another stock. (Don't overlook this overview of a company's well-being. Check out Pay Attention To The Proxy Statement.)

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