Has Columbia Sportswear Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Columbia Sportswear (Nasdaq: COLM  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Columbia Sportswear.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

5.3%

Fail

 

1-Year Revenue Growth > 12%

9.9%

Fail

Margins

Gross Margin > 35%

43.1%

Pass

 

Net Margin > 15%

5.8%

Fail

Balance Sheet

Debt to Equity < 50%

0%

Pass

 

Current Ratio > 1.3

3.67

Pass

Opportunities

Return on Equity > 15%

9.7%

Fail

Valuation

Normalized P/E < 20

20.83

Fail

Dividends

Current Yield > 2%

1.7%

Fail

 

5-Year Dividend Growth > 10%

15.9%

Pass

       
 

Total Score

 

4 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Columbia Sportswear last year, the company has lost a point. Slower revenue growth is to blame for the drop, and the stock hasn't been able to escape the unchanged flatline over the past year.

Sporting apparel may not sound like a high-tech enterprise, but technological innovation plays an increasingly essential role in defining success within the industry. While Nike (NYSE: NKE  ) and Under Armour (NYSE: UA  ) are looking to do battle largely in the shoe segment, Columbia's patented technology includes insect-blocking fabric as well as materials designed to provide sun protection and manage temperature. That makes it harder for competitors to deliver the quality that consumers want from high-end apparel, although VF's (NYSE: VFC  ) North Face and others have managed to make a good show of it so far.

Columbia has also picked up on the advantage of selling its products through its own branded stores. Just as lululemon athletica (Nasdaq: LULU  ) has built a loyal following of customers thanks largely to its store locations, Columbia shares the advantage of maintaining its own brand image while also distributing its goods through other retailers.

For Columbia to improve, it needs the weather to cooperate. Last year's warm winter may have gotten more people outside, but it also means slower sales of winter jackets and other high-margin items. If we get a colder year this season, it could push Columbia solidly higher.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate the best investments from the rest.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in our premium research report. Uncovering these top picks is free today, just click here to read more.

Click here to add Columbia Sportswear to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool owns shares of Nike and Under Armour. Motley Fool newsletter services recommend lululemon athletica, Nike, and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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