As the world's third-richest person and most celebrated investor, Warren Buffett attracts a lot of attention. Thousands try to glean what they can from his thinking processes and track his investments.

We can't know for sure whether Buffett is about to buy Columbia Sportswear (Nasdaq: COLM) -- he hasn't specifically mentioned anything about it to me -- but we can discover whether it's the sort of stock that might interest him. Answering that question could also reveal whether it's a stock that should interest us.

In his most recent 10-K, Buffett lays out the qualities he looks for in an investment. In addition to adequate size, proven management, and a reasonable valuation, he demands:

  1. Consistent earnings power.
  2. Good returns on equity with limited or no debt.
  3. Management in place.
  4. Simple, non-techno-mumbo-jumbo businesses.

Does Columbia meet Buffett's standards?

1. Earnings power
Buffett is famous for betting on a sure thing. For that reason, he likes to see companies with demonstrated earnings stability.

Let's examine Columbia‘s earnings and free cash flow history:

Source: S&P Capital IQ.

Over the past five years, Columbia’s earnings have fluctuated somewhat with economic volatility, though the company has managed to remain solidly profitable.

2. Return on equity and debt
Return on equity is a great metric for measuring both management's effectiveness and the strength of a company's competitive advantage or disadvantage -- a classic Buffett consideration. When considering return on equity, it's important to make sure a company doesn't have an enormous debt burden, because that will skew your calculations and make the company look much more efficient than it is.

Since competitive strength is a comparison between peers, and various industries have different levels of profitability and require different levels of debt, it helps to use an industry context.


Debt-to-Equity Ratio

Return on Equity

5-Year Average Return on Equity

Columbia 0% 9% 11%
Gildan Activewear (NYSE: GIL) 19% 21% 19%
Under Armour (NYSE: UA) 18% 17% 17%
Quiksilver (NYSE: ZQK) 136% (21%) 4%

Source: S&P Capital IQ.

Columbia produces decent, but not fantastic, returns on equity. It carries no debt.

3. Management
CEO Tim Boyle has been at the job since 1988. He began working at Columbia all the way back in 1971.

4. Business
While it's important to remain cognizant of consumer trends, outdoor apparel isn't particularly susceptible to technological disruption.

The Foolish conclusion
Regardless of whether Buffett would ever buy Columbia, we've learned that it has relatively consistent earnings, no debt, tenured management, and a technologically straightforward business, though it's possible Buffett would prefer to see somewhat higher returns on equity. To stay up to speed on the top news and analysis on Columbia or any other stock, simply add it to your stock watchlist. If you don't have one yet, you can create a watchlist of your favorite stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.