Over the last six months, Columbia Sportswear’s shares have sunk to $53.89, producing a disappointing 15.9% loss - a stark contrast to the S&P 500’s 13.4% gain. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in Columbia Sportswear, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.

Why Do We Think Columbia Sportswear Will Underperform?

Even though the stock has become cheaper, we're swiping left on Columbia Sportswear for now. Here are three reasons why COLM doesn't excite us and a stock we'd rather own.

1. Constant Currency Revenue Hits a Standstill

Investors interested in Apparel and Accessories companies should track constant currency revenue in addition to reported revenue. This metric excludes currency movements, which are outside of Columbia Sportswear’s control and are not indicative of underlying demand.

Over the last two years, Columbia Sportswear failed to grow its constant currency revenue. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Columbia Sportswear might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. Free Cash Flow Projections Disappoint

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Over the next year, analysts’ consensus estimates show they’re expecting Columbia Sportswear’s free cash flow margin of 5% for the last 12 months to remain the same.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Columbia Sportswear’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

Columbia Sportswear doesn’t pass our quality test. Following the recent decline, the stock trades at 18.9× forward P/E (or $53.89 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at the Amazon and PayPal of Latin America.

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