Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Volcom's Face Plant

If you're wondering why Volcom (Nasdaq: VLCM  ) shares are doing a face plant today, it could be because some investors are spooked by the future. Are skateboarders and other board sports enthusiasts really that sensitive to trends in macroeconomics? I guess we'll have to see.

Volcom's third-quarter profits and revenues were undeniably good. Net income increased by 43% to $14.5 million or $0.59 per share, and revenues jumped 49% to $91 million. The company's stepped-up European operations contributed $26 million to the revenue growth, although continued investments in European infrastructure contributed to a 49% increase in SG&A expenses.

So what's caused Volcom shares to crash by about 20%? Volcom lowered its fourth-quarter guidance due to several factors. One factor we've heard before -- Pacific Sunwear (Nasdaq: PSUN  ) , a major Volcom customer, which has long struggled to turn around its business. Meanwhile, note several other negative influences -- the shaky consumer spending environment, which many of us retail-oriented investors are aware of, as well as a "challenging 2006 snow season," and lower sales from its new footwear business.

The fourth quarter will weigh on 2007. Revenues will increase by 31% to 33%, and earnings per share will increase by 16% to 18%, although 20% earnings and revenue growth is still "achievable" for 2008. With that, one might wonder if its forward P/E of 16 presents an opportunity.

Shares of another of Volcom's major customers, Zumiez (Nasdaq: ZUMZ  ) , also fell today, although that company reported very good news recently -- despite consumer spending concerns that dogged other retailers.

We've been through this before with Volcom. In July 2006, it got slammed mostly because of Pacific Sunwear, but it navigated the situation admirably. This past summer, Volcom shares wiped out again, and while the third quarter has gone nicely, investors wonder what the future holds, given the relatively sluggish guidance.

Personally, I'm impressed by Volcom and its clever, authentic branding to the board sports crowd. I'm also aware it's one of those high-growth stocks that wipes out when it disappoints high expectations. Given the tough macro environment, conservative investors might wait to see if the fourth quarter presents an opportunity to buy shares cheaper, but given its high-growth history, I don't think it's unreasonable to go shopping for Volcom shares on this dip right now.

Here's some related Foolishness:

Read/Post Comments (0) | Recommend This Article (33)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 539431, ~/Articles/ArticleHandler.aspx, 10/25/2016 3:12:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 5 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
VLCM.DL $0.00 Down +0.00 +0.00%
Volcom, Inc. CAPS Rating: ***
PSUNQ $0.00 Down +0.00 +0.00%
Pacific Sunwear CAPS Rating: *
ZUMZ $22.35 Down -0.15 -0.67%
Zumiez CAPS Rating: **