This is the third in a series of recommendations ( MetPro vs. Nalco (MPR) vs. (NLC), Allergan vs. Johnson & Johnson (AGN) vs. (JNJ)), and I actually addressed these two companies last year. While Under Armour (UA) cratered relative to Columbia Sportswear (COLM), it has surged back to about the same relative price level since the two companies recently reported. When I looked at UA a year ago, I saw a very expensive stock and used COLM as an example of a much cheaper albeit less "exciting" company. Now, my relative interest in the two is that I see COLM as dirt cheap. I recently added it to my Top 20 Model Portfolio and increased the position in the Conservative Growth/Balanced Model Portfolio after it reported Q1 EPS and added it late this week to my own holdings. Here are the numbers:
One number that I don't include but is important is the short-interest. COLM has large insider ownership, so the ratio is high relative to the daily trading volume or the "float", but UA is just sky high at 13% of all shares outstanding and may account for the recent doubling of the stock since March.The basic story is clear: UA is growth, while COLM is value. If, like me, you are expecting economic growth to remain weak for quite some time, you would prefer to invest in a company with very modest growth expectation like COLM and not expose yourself to the chance of another collapse in performance (like Q4, when UA sales growth plunged) or expectations. As I said a year ago, UA has high growth, but high inventory and margins as well. In a recessionary environment, expect the company to continue to lower its margins if it wants to grow.(click on chart to enlarge)
I believe that it will be hard for COLM to hit my target of 44 over the next year, but that would represent about 2X "tangible book less cash" plus the cash added back in. In that environment, UA would probably rise, but not as much, unless it can grow its top-line well in excess of 20% throughout 2009. In a more pessimistic environment, COLM downside should be limited, while UA could retrace much of its recent ascent as it struggles with falling margins and reduces its still high inventories (despite some improvement).
Disclosure: Long COLM
