Over the past six months, Columbia Sportswear’s stock price fell to $53.30. Shareholders have lost 18.7% of their capital, which is disappointing considering the S&P 500 has climbed by 32.7%. This 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? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.

Why Do We Think Columbia Sportswear Will Underperform?

Despite the more favorable entry price, we're cautious about Columbia Sportswear. Here are three reasons we avoid COLM 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. Projected Revenue Growth Shows Limited Upside

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Columbia Sportswear’s revenue to stall. While this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Columbia Sportswear falls short of our quality standards. After the recent drawdown, the stock trades at 16.6× forward P/E (or $53.30 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.

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