Columbia Sportswear Company: An Overlooked Mid-Cap With Generous Upside Potential

Columbia Sportswear Company: An Overlooked Mid-Cap With Generous Upside Potential

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Columbia Sportswear Company is poised to capitalize on trends that favor more active lifestyles.

The company has an impeccable balance sheet with a cash balance that nearly exceeds their entire balance of liabilities.

The company’s consistent ability to generate positive free cash flows is a strength that will fuel further dividend increases and growth opportunities.

The shares are currently trading near their lows and are at least 25% undervalued.

Jordan Siemens/DigitalVision via Getty Images Columbia Sportswear Company ( COLM ) is currently trading near their 52-week lows, despite posting strong earnings and guidance on their most recent earnings release. The company is highly profitable and is generating significant free cash flows. Their fundamentals are supported further by a balance sheet that includes cash on hand that nearly exceeds their entire balance of liabilities.

Recent fashion and recreational trends include a movement towards more active lifestyles, to which Columbia is well poised to capitalize on. In 2022, the company expects double-digit sales growth, which will come after a record-breaking year in 2021. The recent pullback in the shares offers investors a compelling opening into a dividend-paying company with upside price potential of approximately 25%. Business

COLM is a global leader in everyday lifestyle products targeted towards people with an active lifestyle. Their products are principally in two categories: apparel, accessories, and equipment products; and footwear products. These product categories are provided through four well-known brands: Columbia; SOREL; Mountain Hardware; and prAna.

The breakout below, available within the annual 10-K filing , provides a revenue disaggregation for each product category. Additionally, it is summarized by the four geographical segments, which includes the United States, Latin America and Asia Pacific (LAAP), Europe, Middle East, and Africa (EMEA), and Canada. In 2021, COLM reported total revenues of +$3.1B. 65% of those sales were generated in the U.S. Additionally, 76% of total sales were non-footwear related. Product Sales Breakout – Form 10-K Below is a more comparative breakout of sales by geographical segment over the past three years. As can be seen, over 60% of the company’s sales are generated within the United States. Geographical Sales Breakout – Form 10-K While the U.S. accounts for the concentration of total sales, COLM’s products are sold in approximately 90 countries through two primary distribution channels, wholesale distribution and direct-to-consumer (NYSE: DTC ). In the U.S. and LAAP, over 50% of total sales are through DTC, while wholesale accounts for over 50% in EMEA and Canada. Consolidated, the split is approximately 50/50. Product Category Breakout – Form 10-K As part of their business strategy, the company outsources their manufacturing processes to contract manufacturers located outside the U.S. In 2021, their non-footwear related products were manufactured in thirteen countries. Vietnam, Bangladesh, and Indonesia together produced 75% of these products, with Vietnam, alone, accounting for 45% of the total. Their footwear products, on the other hand, were manufactured in six countries, with Vietnam and China accounting for 95% of production. Competition

The market for active lifestyle apparel is highly competitive, and COLM faces competition from numerous companies, both large and small. Larger companies are equipped with significant financial and operational resources with significant scale. One such company is V.F. Corporation ( VFC ), which owns The North Face. As shown in the peer comparison tool below, available from Seeking Alpha , VFC has a market cap of +$20B with 33K employees versus a +$5B market cap and 8K employees for COLM. In addition to larger competitors, COLM must also compete against smaller companies with similar resources but with deep loyalty in their local markets. Seeking Alpha Peer Comparisons Over the past year, all publicly traded apparel companies have lost significant value. COLM is down 16% over the past six months, while some others are down more than 20%. Recent concerns in the industry are primarily related to inflationary pressures, supply disruption, and geographical exposure risk to war-stricken areas of the world. Seeking Alpha Peer Comparisons The declines have created an attractive entry point for many of these names. COLM, in particular, is trading at a significant discount to their five-year averages on many of the valuation metrics below. For example, the current forward P/E of COLM is approximately 15x, which is lower than both VFC and Under Armor, and also lower than the company’s five-year average of 22x. Additionally, their EV/EBITDA multiple of 8x is lower than most of their peers and their own average of 14x. Seeking Alpha Peer Comparisons One noteworthy statistic is insider ownership. As […]

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