Zumiez (NASDAQ:ZUMZ) was often a highflier in 2006, but it skated pretty sharply downhill at one point. However, it avoided the problems that rival Pacific Sunwear (NASDAQ:PSUN) ran into, for the most part, and seems to still retain a lot more confidence than that board sports-related retailer.

In last year's fourth quarter, Zumiez reported profits up 61.9% at $6.8 million, or $0.24 per share, with sales up 42.3% at $75.4 million. Same-store sales were up 20.7%. These were the kinds of results that helped turn Zumiez into a stock many investors were willing to pay a high price for.

In the first quarter, Zumiez's net income was $1.1 million, or $0.04 per share, versus a loss of $40,000, or break-even, in the same quarter the year before. Sales increased 43.2% to $47.8 million, and comps increased 19.7%.

Zumiez took a bit of a downhill turn in its second quarter, though. While profits may have doubled to $1.6 million, or $0.06 per share, with sales up 41.5% to $55.8 million (comps increased 12.6%), Zumiez felt investors' wrath anyway. (Granted, that was a trying time for many retailers.) Zumiez's sales missed analysts' expectations and its guidance only matched their predictions, and the stock tumbled.

The third quarter brought more heady growth. Zumiez's profit increased 29.3% to $6.8 million, or $0.24 per share, while sales increased 43.3% to $82.2 million. Same-store sales increased 10.7%. Fellow Fool Dave Meier took a closer look at the quarter and detected some red flags like declining return on invested capital, and thought that despite many investors' optimism, Zumiez was trading at too high a price then.

There are good reasons why many investors like the idea of Zumiez (indeed, Tom Gardner's one of them, having recommended Zumiez last spring for Motley Fool Hidden Gems). It appeals to the youthful echo boomer generation, which is a growing demographic. Zumiez expects to grow earnings by 30% annually, and it has a respectable balance sheet with no debt. Action sports like surfing, skateboarding, and snowboarding are popular with young people these days, and Zumiez stocks board sports-inspired apparel by Volcom (NASDAQ:VLCM), Quiksilver (NASDAQ:ZQK), Billabong, and Burton.

Of course, rivals like Pacific Sunwear (and Pacific Sunwear's year is a good reminder of when years go bad) and Abercrombie & Fitch's (NYSE:ANF) Hollister also carry some of the same brands that lure the same kids.

What does the Motley Fool CAPS community think? Let's see if surf's up at Zumiez, rated four stars, or if it's going to wipe out.

CAPS summary

Data

Total Bulls

383

Total Bears

23

Bull Ratio

94%

Bear Ratio

6%
*as of 12/22

Looks like surf's up for Zumiez, at least in terms of the popular opinion in CAPS. Four stars and 94% of players who rated Zumiez calling for an outperform is pretty darn upbeat.

If you're wondering about the whole board sports phenomenon and how it relates to Zumiez, consider the following pitch from CAPS player Griffgo4th:

The action sports industry is relatively new when you compare it to that of traditional sports, ie: Baseball, Basketball, Football etc. Along the coasts there are high school surf teams. In the mountains, the youth can participate in high school skiing and snowboard teams. All around America, cities and towns are developing skate parks for skateboarders, bikers, and rollerbladers. I don't think these sports are trends, and they should just gain more popularity in the years to come. Look at how much the X Games have grown in the last ten years or so, as well the Olympics are starting to get involved. The retailers that establish themselves will definitely benefit. I think Zumiez is a great pick here.

When I ask myself what Zumiez's competitive advantage is, and I couldn't help but wonder when reviewing the past year, I took a look at Zumiez, Hollister, and Pacific Sunwear online, and one thing popped right out at me: Zumiez actually provides (and emphasizes) more than simply the board sports clothing. It also provides the equipment, like decks, trucks, and wheels for skateboards, for example. Anybody who has read my past articles about Volcom has probably noticed my hunch that authenticity of lifestyle probably goes a long way with kids who are seriously into board sports.

As far as I could tell, Hollister and Pacific Sunwear showcased spaced-out-looking blond models of both genders on their home pages and fashions (and accessories), but no real gear. And while chasing a true trend with a loyal following can be lucrative over the long term, faddish fashion (and those certain kids who adopt the latest "cool" thing only to drop it next season) can be a risk for niche retailers -- Hot Topic's (NASDAQ:HOTT) tepid financial performance of late might be a good example. It appears Zumiez is prepared to appeal to kids who both participate in the sports and just want to look like they do, which seems to imply the best of both worlds.

Of course, Zumiez's P/E of 52 is the first clue the stock might be as sketchy as the first time on the halfpipe. We'll all be waiting to see which way Zumiez zooms in 2007.

For related Foolishness:

Check out the other companies featured in "The Motley Fool's 2006 in Review and 2007 Preview" special.

If you like stocks like Zumiez and Volcom, check out Motley Fool Hidden Gems. It recommended both these stocks as well as many other small-cap stocks in different industries you might never have heard of. Pacific Sunwear is aStock Advisorrecommendation.

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Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool has a disclosure policy.