May 23, 1995
Ride Snowboards (NASDAQ: RIDE)
Type: Small-Cap Growth, High Risk
Phone: (713) 972-1294
Closing Prices, May 22nd, 1995: Bid $18 3/4 Ask: $18 7/8
Trailing 12-month revenues: $29.9 million
Trailing 12-month EPS: $0.57
Last quarter reported: March 1995 (FY: Dec)
Next quarter reported date: 2Q to be reported in late July
Consensus EPS estimates for quarter: $(0.04)e vs. $(0.05)
FOOL ratio: .59
Target Price: $32ish
Trade: Buying 255 shares, May 23rd
OVERVIEW
"Dude, it's a buy."
Ride Snowboard Company (NASDAQ:RIDE), based out of new corporate headquarters in Preston, WA, is a retailer of snowboards, boots, bindings, and apparel. The Company sells 25 snowboard models nationally and internationally, and has over the past 12 months had a lot of people using phrases resembling the one that led off this report. RIDE went public in May, 1994 at $4 3/4, raising just shy of $5 million. Today, the stock trades at a current ask of $18 7/8, a three-bagger for those lucky IPO buy-and-holders.
Ride Snowboard continues to be the only pure investment play on one of America's hottest new industries. Snowboarding, a diversion once barred from cushy ski resorts, has bloomed into the fastest-growing sport in the U.S. over the past two years, smashing past synchronized swimming and Fool-tossing in 1994. Now The Fool wants in on it.
Our addition of RIDE to The Fool Portfolio is very much in keeping with our small-capitalization growth approach outlined in The Motley Fool Investment Primer. If the company is neither growing at 25% or more per year, nor expanding profit margins, nor generating cash internally, nor turning out a superior and purposeful product or service, nor creatively marketing it in a manner that secures the brand, then the stock might as well sit in the slippery palms of the Wise, 'cause we'd not touch it.
But Ride Snowboard appears to have outstretched each of these Foolish measures---projected to double sales and earnings by the end of fiscal 1995, with margins creeping up past 7.5% (this is a bit lower than normal for us, but a minor relative consideration), cash swelling on the balance sheet, and a product setting the standard in a highly-fragmented and rapidly-growing industry.
The stock has climbed 50% in value since March 1 and, as noted above, has more than trebled since its IPO at this time last year, a run in which The Fool sadly hasn't participated. But, ever contrary, we believe that past success is often a fine indicator of greater prosperity going forward, particularly when the PEG tells us it is so. [If you have a moment, read through MF Bogey's Fribble "Betting on Dead Dingos" via our Highlight of the Day form. Very Foolish stuff.]
With trailing earnings of $0.57, and $1.25-$1.30 projected by the end of fiscal 1996---less than two years off---we pin down a compounded growth rate of 56.6%, a PEG of .59, and a fair price for shares of Ride Snowboard above $30 in the coming year.
So in Rideboardese, we state simply, "Dude, it's a buy." We're putting our money where our mouths are.
THE BUSINESS
Ride Snowboard, the second-leading snowboard supplier on the planet behind privately-held, Burlington, VT-based Burton Snowboards, has ballooned total sales from $208,000 (that's thousand, not million) in 1992 to trailing revenues of $30 million today. RIDE is likely to become a $100 million company in the next twenty-four months. For those keeping score, from the end of 1992 till today, the Company has grown at an annual rate of 630%. Not bad.
On April 13, RIDE, which relies on large and definable pre-season orders for their boards, announced that total board orders this Spring had ramped up from $20 million in fiscal 1994 to $51 million this year, well-above Street and company expectations. Growth expectations sit at 35-45% per year in the succeeding 3-5 years.
80% of Ride's business comes from snowboard retailing, while the remaining 20% is broken out between bindings, boots, and clothing sales. Their snowboards, marketed under the "Ride" and "Liquid" brand names, are manufactured abroad, primarily in Austria, and tested by the Company's team of professional "shredders," Team Ride. But from there, the Company limits the distribution of its boards, intending to manage its growth effectively, to limit its business dealings to only high-quality retailers and, most importantly, to create a greater urgency and demand for its products in the marketplace.
RIDE has made a number of commendable business decisions over the last few years.
First was the decision to go public in May of 1994, a move which both generated cash and, of equal importance, brought greater visibility for RIDE, a company aiming to broaden its customer base beyond their bread-and-butter bracket, adolescents with an attitude. Reworking its marketing plan to take advantage of the growing numbers of middle-aged (anyone over 17) snowboarders remains a challenge for the company. . . in much the same way, perhaps, that Harley-Davidson went out and began trying to sell its bikes to un-black-leather-clad yuppies. Despite having risked alienating its loyal customer base though, Harley hit a grand-slam homerun pitching its bikes to squash players in Harvard Square. And last winter, we saw older people hip with snowboards all over the slopes, so we believe this challenge is one that our management will, Harley-like, surmount. And charring Wall Street with its brand early on was an excellent move.
Second, in August 1994 the company bought out Toronto-based CAS International for 400,000 shares of RIDE and $350,000. CAS, a global marketer of snowboards and related products, accounted for $23 million of RIDE's $51 million in spring orders this year. CAS's diversified product lines, including athletic footwear and in-line skates [the second most popular sport in the US over the past two years] should help to dilute some of the seasonality of snowboarding business. (The company has historically done 80% of its business in the third and fourth quarters of the year, typically losing money in the first half as it is projected to do once again this year.)
Third, Ride Snowboard has carefully integrated new merchandise into its offerings, through the Cappel clothing line of jackets, pants, sweaters, et al. Today, clothing accounts for less than 5% of RIDE's overall business. Developed gradually, fashioned professionally, and marketed successfully, Cappel should bloom into a much more substantial rose for RIDE. Chief "shredding" competitor, Burton Snowboards, derives fully 60% of all business from its diversified line of winterwear.
Fourth, RIDE management and staff haven't abandoned the attitude that has driven them to unimaginable growth. They ooze personality and purpose. Purpose and personality? The Company markets "Safe Ride" condoms and breath-analyzers. RIDE's purple-haired president, Tim Pogue, explains: "We [offer those products] because we're based in reality. The market we are going after lives in a rough world. These products show we care. You don't drink and drive. And you wear a condom to be safe."
Heck, that's business in the 90's. Fools concur that a primary aim of the best consumer-based operations is to improve the lives of their customers in ways that extend beyond their core business. Build a brand that means something to consumers by offering them ancillary services and products that enrich their lives. Business 101, yes. But many "corporate leaders" perhaps skipped that course. RIDE ain't one of'em.
The combination of greater publicity, greater scrutiny, international expansion, integration of snowboards at a variety of price and distribution levels, growth into the realm of winter apparel, and an attitude that has the company on a mission going forward. . . it all sounds so Foolishly-fashioned, it hurts. "Why don't WE own stock in this company?" we've asked ourselves over the past few months. We're sick of only asking.
THE NUMBERS
On March 31, Ride Snowboards came out with earnings a penny above estimates. Here are the numbers:
1Q 1995 1Q1994 Sales $4,985,161 $460,719 Earnings ($409,489) ($292,161) EPS ($0.11) ($0.13)
Holy cow! The Fool is buying another company with negative earnings?!
Actually, no. As mentioned above, Ride Snowboards is in a pronouncedly seasonal business, with over 80% of sales and more than 100% in profits coming from their 3rd and 4th quarters (Autumn and Winter). It's probably helpful to lay out year-end 1994 numbers:
1994 1993 Sales $25,348,948 $5,877,283 Earnings $1,865,661 $343,395 EPS (fully-diluted) $0.55 $0.17
Profit margins had risen to 7.4% in 1994 up from 5.8% in 1993. On the balance sheet, working capital swelled from $1.1 million to $7.9 million, long-term debt held steady at $0, and cash and equivalents grew from $900,000 to $5.8 million. More reasons why the stock has risen from its initial offering price of $4 3/4 to $18 1/2 today.
Take a look at those comparisons above again. The growth from 1993 to 1994 shows 4.3x sales, 5.4x earnings, and 3.2x earnings per share (lower total due to the public offering). No leveraging, no dividend, no heavy share dilution. This growth is as pure as the driven snow.
Now poised between the slow first and second quarters, let's scan again the preseason orders announced April 18th:
1995 1994 Ride Snowboard $28 million $14 million CAS Intl $23 million $6 million TOTAL: $51 million $20 million
In 1994, $20 million in preseason orders led to $25.3 million in annual sales, suggesting real orders running 25% over preseason bookings. Third-grade mathematics therefore points to sales in 1995 around $65 million. If margins hold around 7%, that would set earnings at $4.5 million. Off 4.4 million projected shares outstanding, earnings per shares (EPS) estimates appear headed for around $1.02 for 1995, in line with some reports and a full 11 cents above retail brokerage Dain Bosworth's estimates for 1995. We're that bullish.
Given the preseason orders, the margins expansion, and further growth in RIDE's Cappel line of clothing, we expect to see $1.00 EPS this year, and over $1.30 per share in fiscal 1996.
PERFORMANCE
Ride Snowboard is telling the old "shredders" joke to Fools:
How does a snowboarder introduce himself to you on the mountain?
"Whoa! Sorry, dude."
"Sorry, dude" sounds more like what this stock has been saying to us for having missed it so far in 1995. Ride Snowboards has whizzed by THAT fast.
The stock has appreciated more than 50% since March 1st, and frankly, it wasn't a terribly hard situation to read. Monstrous sales and earnings growth, cash growing on the balance sheet, a progressive marketing plan, and an industry on a rampage---RIDE has been a classic Foolish investment, as outlined in The Fool Primer. Just more validation that well-managed, rapid-growth, cash-strong, zero-debt, moderate-PEG companies make great investments. They aren't tough to find here in Fooldom. (For another example, see today's Daily News regarding Encad, a stock our readers and staff had picked three months and 100% ago.)
RIDE has been phenomenal. But the emphasis going forward is not on the verb tense and voice in the previous sentence: "Has been." We expect Ride Snowboards to compound in excess of 50% growth in the coming 24 months, making its $18 1/2 share price and multiple of 33 look cheap. Let's run the Fool Ratio (PEG) together. (Newcomers may read about our Fool Ratio in the article by that name in our Fool's School.)
After losing 11 cents in its first quarter, RIDE has 57 cents of trailing earnings per share. Our first aim is to find the total percentage growth gain from the present $0.57 to the earnings target for the end of next year. Just to be conservative, we'll use $1.25 per share for fiscal 1996. Thus, to find the total percentage growth we divide the $1.25 per share for next year by the current $0.57. Your calculator will show 2.19. (This means that total growth will be 119%.) Now we're aiming to reach an annualized growth rate based on those estimates. Veteran Fools will know that we take a root of 2.19 equal to the number of years from start point to end point. As we're looking at a time period from April 1995 to December 1996y, that makes for 1.75 years. That's the root we take, the 1.75 root of 2.19, which yields 1.566, or 56.6% average earnings-per-share growth per year.
The Fool Ratio says that in cases of fairly-valued growth stocks, the P/E multiple ought to EQUAL the average annual earnings growth going forward. Thus, our P/E multiple for fairly-priced RIDE shares should sit at 56.6. Let's multiply that out.
Just multiply trailing earnings per share by 56.6. (56.6 x $0.57 = 32.26.) That's our Foolish fair price, $32ish. To reach our Fool Ratio, you just take today's current price ($18 7/8) as a percentage of that Foolish fair price ($32 1/4). . . you'll come up with a PEG of .59. That's another way of saying that we think RIDE is currently trading at only 59% of its Foolish fair price. If RIDE hits our fair price target, Fools will have caught over 70% in profit.
Tuesday, we'll hop aboard The Board by picking up 255 shares, thus building up a .0058% ownership position in RIDE. Who knows? One thing happens, then another, chips fall our way, maybe we end up on the board.
The stock trades an average daily volume of 77,000 shares a day. Multiplying this by the current price gives you the average daily dollar volume. This is a concept we watch closely at Fool HQ, to see how much money is moving in and out of a given stock. On an average day, about $1.5 million of RIDE changes hands, giving it average liquidity in the small-cap category.
OUTLOOK
Ride Snowboards presents Fools with an opportunity to quit biting their knuckles for not having participated in a 300%+ runup in RIDE shares over the past year. With what still looks to be a markedly-undervalued stock, now's as good a time as any to hop on board. We'll modify the preceding sentence: ". . . now's as good a time as any to hop on board, PARTICULARLY on account of its past performance." Great companies sport great stocks for long periods of time.
We expect to see 50%+ growth in the coming twelve months in this investment, but holders of our fair Sonic Solutions (NASDAQ:SNIC) know that large potential rewards entail stronger risk, and things don't always work out quite so well as we would have them. With only $29 million in trailing sales, Ride Snowboards is capitalized at $120 million, meaning that a company like Microsoft could buy majority positions in fully seventy-five companies the size of RIDE and still have some cash on its balance sheet. MicroBoards?
But RIDE could well be in the process of blooming from a quarter-million-dollar company in 1992 into a hundred-million-dollar company five years later. We don't see any petering out in the snowboard industry any time soon, and Ride is well-positioned to capitalize on the expansion, nationally and internationally.
Let's for the fun of it review a number of fine recent posts in our Ride Snowboards stock folder. We begin in late February and work through to yesterday:
Subj: Re:earnings?
Date: 95-02-21 02:00:02 EDT
From: Schlepper
Posted on: America OnlineHas this stock got no following in Fooldom? How can an industry growing like snowboarding not attract some attention? It's to snow what surfing is to water and skateboarding is to sidewalks. I may be an over-the-hill 36-year-old who's skiied for 30 years, but I'm getting ready to take up this sport. In Colorado, I'd say fully one-fourth of the skiers are shredding instead. It's revitalizing the whole ski industry. Now, where are some numbers on this company?
Subj: Re:Vegas Show
Date: 95-03-13 11:14:32 EDT
From: Johpa
Posted on: America OnlineThanks for the response regarding the Vegas show. I am a small-time market player who has purchased a few shares of RIDE. I've been a skier for over 30 years and am not blind to the changes going on on the slopes; wouldn't be surprised if my kids end up on a board in the near future. I was attending the neighboring trade show at the Hilton and was able to make a brief foray into the Ski show and noticed that the RIDE booth area did indeed look busy. Now if only I could get the people at my trade show to party the way the Ski show people do, and inside the convention center at that!
Subj: RIDE IT OUT
Date: 95-03-22 01:29:21 EDT
From: TOMLGX4
Posted on: America Online6 years ago I sold snow skiis at a local ski shop, and we sold maybe 3 snowboards a season. Now, talking to my ol' buddies at the shop, they can't keep the boards in stock. One friend said the sport is growing at an astronomical rate. Checked in with some local shops, hmm... no RIDE boards in stock---SOLD OUT. I'm in at $13 with 200 shares. All signs look up for growth and sales, I'd say a good buy.
Subj: Oh Cool
Date: 95-03-28 18:50:55 EDT
From: GOLFING2
Posted on: America OnlineI called the company to request financial information. The Shareholder Rep said "Oh Cool!" Boy did I feel old! But I have to admit that the numbers look great.
Subj: Fool ratio
Date: 95-05-16 11:01:24 EDT
From: Maineline
Posted on: America OnlineI've been watching RIDE and this folder recently, and appreciate the info provided. After seeing RIDE hit its new high, I got even more interested. Today, I ran a Fool ratio on the company based on available earnings reports. RIDE earned $.55 per share in 1994. Estimates are for $.91 in 1995 and $1.24 for 1996. At $18 this gives a Fool ratio of .65. [Ed. Note: We use higher estimates than these.] The annualized EPS growth is 50% and the "full value" of the stock based on future earnings should be about $27. Ipso facto, I bought 100 shares today and just regret that I didn't buy even earlier. Congrats to you fellow Fools who have been onto this one for quite a while now.
Subj: Re:Fool ratio
Date: 95-05-21 23:35:20 EDT
From: Dr MarkR
Posted on: America OnlineI started tracking RIDE about 2 months ago after my first winter of snowboarding. This is a great sport, even for a 37 y/o (former) skier. I'm convinced that 15-20 years from now our grandkids will sit on our knee and ask us about the old days when we used to "saw our snowboards in half." Totally by coincidence, I took some profit on Intel and bought RIDE the day before the runup started. Had to snoop around to find out why it happened, but glad I moved when I did!! If the Peter Lynch theory holds water (??snow??) , this one is going to be good.
Rereading these notes, we're reminded why we brought our publication online in August of 1994. Just terrific. And further indication that for those willing to search, excellent investors and quality information abound in the Fields of Folly. For the second purchase in a row [previously Iomega], our readers have beaten us to the punch and turned 50% in three-month profits before our entry. Fools!
Better late than never in most things, of course. And as long as the Company meets its back orders, continues to generate enthusiasm for its products, rewards its loyal customers while reaching out to new markets, and does so ever with its eyes on strengthening its brand, we think RIDE makes for an excellent long-term buy-and-hold.
