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As I wrote earlier today, I purchased 105 shares of Zumiez (ZUMZ) at $52.96. ZUMZ later in the day sold off as many of the retail stocks also were weak as the NASDAQ corrected. ZUMZ closed at $50.63, up $3.23 or 6.81% on the day, a little of $2 under my purchase price. In spite of all that, I shall explain why
ZUMIEZ (ZUMZ) IS RATED A BUY
I first wrote up Zumiez on September 16, 2006, when the stock was trading at $26.24. As I pointed out, I did purchase some shares for my son's account (less than 50), but today's purchase is my first entry into this stock.
Let me try to briefly explain my rationale for buying shares of this retailer in an otherwise weak retail environment, when given the choice of a new position with my own partial sale of my Cerner stock.
Any news on Zumiez?
One of the most important criteria for selecting a stock is 'same-store sales growth'. What pushed Zumiez up strongly was an outstanding report released yesterday after the close of trading. As reported:
"Zumiez Inc (NasdaqGS:ZUMZ - News), which specializes snowboarding and skateboarding equipment and apparel and was sheltered in part by geography and its casual product mix, reported a 13.9 percent rise in September sales at its stores open at least a year."
13.9% is a phenomenal figure. And the stock took off to the upside on opening today. However, later in the day, the stock, along with other retail shares, sold off...leaving me with a purchase a couple of $'s in the red. Not helping the situation was a downgrade today from 'Buy' to 'Hold'!
As my regular readers know, I regularly check the latest quarterly report for basic results. In this case, Zumiez announced 2nd quarter 2007 results on August 22, 2007. Net sales for the quarter ended August 4, 2007, climbed by 47.0% to $82 million. Net income for the quarter was up even a greater percentage at $3.1 million, or $.11/diluted share, from $1.6 million or $.06/diluted share last year. This was an an 83.3% increase in earnings!
A couple of important points in the report: the company raised guidance for fiscal 2007 to $.97 to $.99/share from the prior guidance of $.94 to $.96/share. Also, the 13.8% same store sales growth reported for last month wasn't a 'fluke'. As the report notes:
"Comparable store sales increased 11.6% for the second quarter of fiscal 2007 compared to a 12.6% increase in the second quarter of fiscal 2006."
Thus, this double-digit same store sales increase was present in the first quarter of 2007 as well as the first quarter of 2006! This company is on a roll! In addition, the company beat expectations of $.08/share on revenue of $80 million for the quarter. This was a great earnings announcement!
What about longer-term results?
The '5-Yr Restated' Financials on Morningstar.com are intact and impressive with steady revenue and earnings growth, stable outstanding shares, positive free cash flow and a solid balance sheet.
Looking at Yahoo "Key Statistics" on Zumiez, we find that the stock is a mid cap stock with a market cap of $1.45 billion. The trailing p/e is very rich at 64.01, yet the growth is strong enough that the PEG is only slightly rich at 1.59 from my perspective.
There are 28.69 million shares outstanding with 15.27 million float. There are 6.05 million shares out short representing 6.7 trading days of volume, or 33.10% of the float. This is more than my '3 day rule' and should be taken into consideration.
No cash dividend is paid and the last stock split was a 2:1 split on April 20, 2006.
Checking the Fidelity.com eresearch website, we can also see the rich valuation with a Price/Sales (TTM) of 3.86 compared to the industry average of 0.97. The company has a Return on Equity (TTM) of 20.96% compared to the industry average of 26.08%. Thus both of these statistics show relatively rich valuation.
And the Chart?
If we examine a "point & figure" chart on Zumiez (ZUMZ) from StockCharts.com, we see a chart of amazing price strength going back into 2005. The current pullback does not appear significant enough to change the trend.
I liked this stock last year enough to buy some shares for my son. This year, with the opportunity arising with the sale of a portion of my shares of Cerner (CERN), I chose to add this stock to my Trading Portfolio. My timing today left a bit to be desired as the retail stocks pulled back sharply late in the day. However, the numbers underlying this stock's performance have not diminished and are just as impressive.
In particular, I am enthralled with the 13.8% same store sales growth number. In addition, they did the same kind of growth in the latest quarter and also did it a year ago! This company is on a sales roll!
The latest quarter was great as the company beat expectations for both revenue and earnings and also raised guidance. Valuation wise, the p/e is very expensive, but the rapid growth expected to continue brings down the PEG into a reasonable estimated level. Other valuation numbers are also steep including the Price/Sales and the Return on Equity which is a bit weak relative to other companies in the same Industrial Group.
There are lots of shares out short giving any correction possible support, and giving any rally in the price, additional energy. The chart looks great, and the company has a certain amount of "Peter Lynch" to its attractiveness. Anyhow, that's my call---and I liked the stock well enough to buy some shares!
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Have a great Friday everyone!
Updated: Friday, 12 October 2007 1:07 AM CDT