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Columbia Sportswear: Benefiting From Attractive Asset Pricing Metrics

A reduced cost of capital and GDP forecasts could further the stock's impressive performance

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Steve Gray Booyens
Sep 08, 2021

Summary

  • There's a linear decline in WACC.
  • Renewed GDP growth optimism could play into factor pricing.
  • Its DTC strategy has sent the company into a new paradigm.
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Columbia Sportswear Co. (

COLM, Financial) will continue its growth through to the backend of 2021 as its newly implemented strategies have started paying off. Pricing metrics also indicate further upside is ahead.

Earnings

The company, which manufactures and distributes outerwear, sportswear and footwear, as well as outoor recreational equipment, beat its second-quarter revenue estimates with 78.9% year-over-year growth. The catalyst for its sustained revenue growth has been its drive toward better digitalization and delivery options.

The direct-to-consumer model is a crucial driver behind the recent performance. The DTC channel displayed sales growth of 69% in the second quarter, and wholesale net sales rose 89%. Global DTC brick-and-mortar sales also grew by 149% as the company shunned its earnings from a year ago with store reopenings.

Benefiting from a lower cost of capital, Columbia Sportswear is now trading at a cost of capital below 6%. The company has come a long way to improve the risk-return utility prospects for investors.

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The lower cost of capital could increase its future intrinsic value, especially if you consider the impressive increase in free cash flow yield we've witnessed from Columbia during the past year.

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GDP Influence on factor pricing

Goldman Sachs has upgraded its gross domestic product growth estimate for 2022 to 4.6% from its previous 4.3%. I believe real GDP could grow faster than that, especially as job openings have diverged from unemployment for the first time since 2018.

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Source: Charles Schwab.

If you use real GDP growth as the leading factor in a pricing model (which you should for retail stocks), you'll most likely have to revise your Columbia price target upward.

Final word

Columbia Sportswear's stock is still in great shape after a good run in 2020 and for the first half of 2021.

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Source: TipRanks.

According to Wall Street, the stock has a bright outlook and could reach the $128 mark (28% upside), with UBS being the latest big bank to set a price target of $118 (18% upside).

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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