Somehow it just does not seem too likely that Gucci's core customer base overlaps much with folks who call themselves "Wooly" and "T-Dawg", but France's PPR, which owns the esteemed Gucci label, is going to give it a go anyway. On Monday morning, the French holding company announced that it would be acquiring U.S. boardwear apparel maker Volcom (Nasdaq:VLCM), which was founded by the aforementioned Wooly and T-Dawg in 1991. (For background reading, see Using Consumer Spending As A Market Indicator.)

Tutorial: Top Stock-Picking Strategies

The Terms of the Deal
PPR is paying almost $608 million for the smaller clothing company, giving Volcom shareholders $24.50 a share in cash, or a 24% premium to Friday's close. That puts a valuation on Volcom shares of about 1.5x trailing sales and about 10.5x trailing EBITDA - not exactly premium pricing for a once-hot stock.

Still, it is difficult to value a company like Volcom on a relative basis. Billabong is publicly listed in Australia and trades at an even lower valuation, Quicksilver (NYSE:ZQK) is struggling, and other once-popular boardwear companies like Vans and Ocean Pacific faded years ago and were acquired by the likes of VF Corp (NYSE:VFC) and Iconix (Nasdaq:ICON).

What PPR Is Getting
That "once hot" part about Volcom is the trick, though. While Volcom was a hot idea in retailing, the company suffered from slowing growth, fickle consumer tastes and more expensive sourcing. Now that the company has joined forces with Puma (another PPR brand), some of those issues may be easier to resolve. It is unlikely that Volcom will come back as a must-have brand (there are few second acts in casual apparel), but PPR may be able to make it a more profitable asset.

Still, it is an odd collection of assets that PPR has assembled. Gucci, Yves Saint Laurent and Balenciaga all go together well enough, but it is unusual to see a company successfully operate at such radically different price and fashion points. What's more, it's not like PPR has really managed Puma to great effect - the recession was hard on many casual brands, but Nike (NYSE:NKE) and Adidas (OTC:ADDYY) have nevertheless performed considerably better.

Whither Other Popular Brands?
The fate of a company like Volcom should not be forgotten by today's investors in companies Under Armour (NYSE:UA) or lululemon (Nasdaq:LULU). These are some of the hottest brands right now, and they carry a multiple to match. Now maybe both companies will succeed in developing a solid all-around brand and business that can stand the test of time.

The Bottom Line
History suggests that is very rare, though. Investors should consider, then, whether they are so eager for growth that they want to pay double or triple the multiples of Nike just to get the higher growth rates at UA and LULU. Growth stocks are a lot of fun during the building phase, but as names like Volcom, Quicksilver,
Pacific Sunwear (Nasdaq:PSUN) and Hot Topic (Nasdaq:HOTT) have shown, that fun can end in tears once consumers tire of a certain look or a certain brand and move on to the next hot thing. (For more, see Consumer "Fads" That Haven't Faded.)

Related Articles
  1. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  2. Investing

    Redefining the Stop-Loss

    Using Stop-losses for trading doesn’t mean ‘losing money’, but instead think about the money you'll start saving once you learn how they work.
  3. Fundamental Analysis

    10 Major Companies Tied to the Apple Supply Chain

    Apple has one of the best supply-chain models. Here are some of the top businesses involved, and the benefits and challenges for all.
  4. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  6. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  7. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  8. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
  9. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  10. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Fast Fashion

    Definition of "fast fashion."
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!