A Stock for Thrill-Seekers

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Investors weren't too stoked about Volcom's (Nasdaq: VLCM) third-quarter results. Is there more to this stock than meets the eye?

Third-quarter net income fell 18.4%, to $13.3 million, or $0.54 per share. Revenue dropped almost 16%, to $93.9 million. On a more positive note, quarterly gross margin ticked up a bit to 51.6%, from 49.4% this time last year. Spending less on promotional activity worldwide allowed the company to better maintain prices.

Need a serious thrill? Volcom beat analysts' expectations for third-quarter earnings of $0.37 per share by a long shot. Less excitingly, Volcom gave a fourth-quarter forecast of earnings of $0.01 to $0.04 per share, well below analysts' previous expectations for $0.11 per share.

Volcom still faces what could be a very difficult holiday season for the retailers and consumer-goods companies to whom it supplies most of its board-sports-related merchandise, including Zumiez (Nasdaq: ZUMZ) and Pacific Sunwear (Nasdaq: PSUN). The latter, Volcom's biggest customer, could be a serious problem. In Volcom's most recent conference call, CFO Doug Collier acknowledged that revenue from long-suffering PacSun dropped 65%. Nonetheless, I think Volcom's better off than most of these companies, as long as it keeps its brand strong.

With its seemingly authentic appeal, Volcom seems like a more attractive prospect than retailers such as Abercrombie & Fitch (NYSE: ANF) and Talbots (NYSE: TLB). Abercrombie has reported gut-wrenching decreases in sales and earnings in recent quarters, while Talbots has struggled for years under a mountain of debt.

In contrast, investors who bought Volcom shares back in March have enjoyed some totally radical gains. The rally has driven shares into admittedly pricey-looking territory, relative to competitors.

Company	Trailing P/E	Forward P/E	Projected 5-Year Annual Growth Rate
Volcom	26	19	20%
Aeropostale (NYSE: ARO)	14	11	15%
Buckle (NYSE: BKE)	12	11	12%

Data from Yahoo! Finance, as of Nov. 2.

With our overall economic future so uncertain, I'm not inclined to take analysts' projections of any company's future growth as gospel. Even their rosy forecasts for Volcom might prove too optimistic.

I don't think there's any reason for long-term Volcom shareholders to cut and run; I like the company for the long term. However, given its current challenges and its lofty price, I think interested investors might be best off waiting for a more appealing entry point. Premium-priced stocks can sometimes deliver flaming wipeouts if their growth disappoints, and the difficult holiday season ahead may force Volcom shares into cheaper territory.

What do you think of the board-sports brand's prospects: gnarly or bogus? Please let us know in the comment boxes below.

Grab your board and skate along with some related Foolishness:

• Last quarter, Volcom was still riding fakie.
• One Fool gave three reasons not to miss the Volcom boat.