Columbia Sportswear Co Stock Appears To Be Modestly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Columbia Sportswear Co (NAS:COLM, 30-year Financials) appears to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $107.75 per share and the market cap of $7.2 billion, Columbia Sportswear Co stock is estimated to be modestly overvalued. GF Value for Columbia Sportswear Co is shown in the chart below.


Columbia Sportswear Co Stock Appears To Be Modestly Overvalued
Columbia Sportswear Co Stock Appears To Be Modestly Overvalued

Because Columbia Sportswear Co is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 2.3% over the past three years and is estimated to grow 3.79% annually over the next three to five years.

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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Columbia Sportswear Co has a cash-to-debt ratio of 1.89, which is better than 74% of the companies in the industry of Manufacturing - Apparel & Accessories. The overall financial strength of Columbia Sportswear Co is 8 out of 10, which indicates that the financial strength of Columbia Sportswear Co is strong. This is the debt and cash of Columbia Sportswear Co over the past years:

Columbia Sportswear Co Stock Appears To Be Modestly Overvalued
Columbia Sportswear Co Stock Appears To Be Modestly Overvalued

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Columbia Sportswear Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.5 billion and earnings of $1.623 a share. Its operating margin is 5.48%, which ranks better than 67% of the companies in the industry of Manufacturing - Apparel & Accessories. Overall, the profitability of Columbia Sportswear Co is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Columbia Sportswear Co over the past years:

Columbia Sportswear Co Stock Appears To Be Modestly Overvalued
Columbia Sportswear Co Stock Appears To Be Modestly Overvalued

Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Columbia Sportswear Co's 3-year average revenue growth rate is in the middle range of the companies in the industry of Manufacturing - Apparel & Accessories. Columbia Sportswear Co's 3-year average EBITDA growth rate is -2.9%, which ranks in the middle range of the companies in the industry of Manufacturing - Apparel & Accessories.

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Columbia Sportswear Co's return on invested capital is 6.08, and its cost of capital is 6.81. The historical ROIC vs WACC comparison of Columbia Sportswear Co is shown below:

Columbia Sportswear Co Stock Appears To Be Modestly Overvalued
Columbia Sportswear Co Stock Appears To Be Modestly Overvalued

In closing, the stock of Columbia Sportswear Co (NAS:COLM, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Manufacturing - Apparel & Accessories. To learn more about Columbia Sportswear Co stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.