November 30, 1995
Ride Incorporated (NASDAQ: RIDE)
Type: Small-Cap Growth, High Risk
Phone: (206) 222-6015
Closing Prices, November 29th, 1995: Bid $22 1/4 Ask: $22 5/8
Trailing 12-month revenues: $61.9 million
Trailing 12-month EPS: $0.58
Last quarter reported: September 1995 (FY: Dec)
Next quarter reported date: 4Q to be reported in February
Consensus EPS estimates for quarter: $0.16e vs. $0.13
FOOL ratio: 1.30
TRADE: Selling our 510 shares, November 30th
Tomorrow, we will be selling our 510 shares of Ride Incorporated. First purchased during the start of the NON-SKIING season, May, we have ridden this stock through several good earnings reports, a 2-for-1 stock split, a company name change, and eventually, a two-bagger. RIDE has been an outstanding stock for The Fool Portfolio, and we have a tremendous amount of admiration for the company.
The reason we are selling the stock is that it has now comfortably exceeded our target price, and we expect to find better values among the universe of 9000 other U.S. stocks. Does this mean we think RIDE is going to drop? Not at all. We honestly have no idea (as usual) where this stock is headed in the coming months. But purely from the standpoint of valuation, this one now looks more than fully valued according to our Fool Ratio, and we are going to find cheaper stocks. That's the sole rationale behind the cash out.
Preston, WA-based Ride Incorporated is the premier publicly-owned vendor of snowboards. Snowboarding consistently remains atop the list of the fastest-growing U.S. sports, and Ride is the second biggest player in the industry. (Privately held Morrow, which is soon to go public, is the biggest snowboard manufacturer and retailer.) Over the past year, Ride management has made a priority of diversifying its product base, purchasing additional board makers and clothing retailers (CAS Sports). Part of the reason this company's stock has ten-bagged since coming public at $2 1/2 in May 1994 is the market's ongoing realization of Ride's solid leadership position within a key new recreational industry. Snowboards are NOT a fad, as recent studies continue to confirm. Newcomers to the slopes are taking up snowboarding over skiing by a ratio of THREE to ONE.
With latest 12-month sales of $62 million expected to go to $100 million by the end of next year, RIDE remains in a tremendous growth mode.
Current earnings per share are 58 cents, meaning the P/E at today's close of $22 1/4 is 53. Now estimates for next year (12/96) are 80 cents, and 80 cents from today's 58 cents would make for an annualized growth rate of 29%. This is CLEARLY, to our Foolish way of thinking, too conservative. After all, analysts have significantly undershot on estimates all the way up.
Our forward estimated growth rate is closer to 35%-40% over the next two years. But given that, the current P/E of 53 still makes for a PEG of somewhere between 1.30 and 1.50. When we purchased this stock just six months ago, the Fool Ratio was 0.59.
This is the way we hope ALL of our investments always work out. Would that this were true, in practice.
It's always sad to sell a big winner, and we have the usual regrets. A great stock creates a certain feeling of security among its shareholders that it'll continue leading them to new heights; we'll miss that feeling. Further, our daily report will no longer feature one of our three triple-digit winners, which did of course appeal to our Foolish pride. But finally, and far more importantly, Ride Inc. has been one of the great companies for small-time investors to hold because the company does such a GREAT job of keeping individual investors informed. Company reps remain in our RIDE folder in the Stock Boards answering reader questions, management appeared in a Fool-sponsored auditorium event, and the company always invited us to its conference calls. Our gratitude goes out once again to the Salters and Deven Perschke and the other representatives of the company for setting an example that we hope one day the rest of American public companies will follow. RIDE investor relations has been superlative.
FINAL FOOLISH IRONY
What we have to treasure in this particular investment, looking back, is the irony that we held it to better than a double during the half of the year when people do NOT snowboard. This manufacturer of winter recreational products crushed the market during the SUMMER months, and made a lot of Fools a lot of money.
This goes against most people's thinking. Most people figure that you should buy a retail stock before Christmas, or a tax-related company in April, or whatever. But in fact, the market tends to look well ahead of whatever the next season is, so that trying to time your buys concurrent with seasonal trends ends up not making much sense.
Fools always appreciate irony, and this is the ironic investment lesson to take away with us as we proceed forward.