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Investment Ideas From the Ski Slopes


The slopes are offering some investment angles worth exploring.

I have three true passions outside of my family: basketball, golf and snow skiing. But for some reason I never really focused on any of them from an investment standpoint, except for occasional stints in and out of Callaway Golf (ELY) back when it "owned" the golf clubs market.

With my kids now old enough to start getting involved in all of the sports, I am writing this while in the midst of the first true ski vacation in many moons.
In prepping for it, I did a fair amount of digging before purchasing equipment for the whole clan, and unable to completely "leave the office," I am beginning to think the slopes are offering some investment angles worth exploring. Read below for a list of companies whose products are all over the "winter sports" world.

The "Boards"

The brand cycle for skiing equipment is about as fickle as teenage fashion. In fact, to a fair degree, skiing/snow boarding incorporates teenage and young adult fads. But occasionally a company hits the performance sweet-spot to an extent that it may actually give it a certain amount of staying power. In my humble opinion, such is the case with the recent line of Rossignol Bandit skis. The Rossies B2 in particular have achieved almost cult status as high performance all mountain skis. For the "shredders" in the 'Ville, think back to the Salomon XScream Series at the turn of the decade, the Volkl P-10's of the early '90's, or the Fischer C4's of the late 70's. Realizing that for nearly the last decade I would not have had enough ski time to justify buying new equipment, I have demoed a whole lot of skis every chance I've gotten. Maybe I have come across the B2's at the right time, but regardless, these skis are sufficiently different to justify buying them. And across the Bandit line, the various models combine a level of performance and user friendliness that spans all levels of skill.

This officially ends the "advertising" portion of the program.

The fact remains that hitting the right product line does not mean making money, witness the results of K2 (KTO) for what seems to have been an eternity. KTO finally caved and recently acquired Volkl AG, to buy itself some revenue growth. Incidentally, the K2 ski brand seems to have vanished from the slopes, and while I have not dug into whether this is actually true, my sense is that KTO has chosen to push the Volkl line on the ski side, and the K2 brand for snowboards.

But back to Rossignol. After years of losing money, this French outfit accepted a controversial buy-out by American "funky clothing" retailer Quicksilver (ZQK). I say "controversial," because on the heels of the acquisition of golf club maker Cleveland Golf, ZQK's shorts seem rather sure that the company is a mish-mesh of products waiting to blow up. I think the shorts are likely going to be proven wrong.

First, ZQK was already pretty prominent in snowboarding circles; therefore, the Rossie acquisition seems to make a fair amount of sense. And second, at the Wall Street level at least, it may have been ignored that with Rossignol, ZQK picked up Dynastar skis (which have had their own occasional success, especially in competitive racing), as well as Lange boots and Look bindings, both leading brands in their own space. In short, for $350 mln, ZQK is now THE top dog of the slopes, pretty much head to toe.

Not everything is "roses" of course. The integration of both Rossie and Cleveland Golf has changed the essence of Quicksilver, and transformational M&A's carry even greater risks than your "plain vanilla" type acquisition. And the latest quarterly report showed some skimpy margins from Rossignol, something that must be improved. But the stock trades at 1x PEG of 20-25% for the next two years, and sports a P/E ratio at the low end of the historical range. If ZQK is capable of managing itself through its acquisitions, and the economy does not tank (skiing is getting to be a VERY expensive activity all the way around), ZQK's stock offers some very enticing growth at a fairly reasonable price.

Having touched on the best and the worst public companies in the winter sports world, there's a "middle child" that deserves a quick mention, thanks in part to products that have been a mainstay on the slopes for decades. Finland based Amer Sports (AGPDY) owns the Salomon and Atomic ski lines (no slouches), as well as top-end work-out equipment maker Precor. If neither the skis nor Precor rings a bell, Wilson's lines of sporting goods for baseball, basketball, football, and another ½ dozen sports ought to do the trick. AGPDY trades at a 4 P/E on a 12% long term growth rate, but the company has a good chunk of debt on its balance sheet, and the ADR's trade by appointment.

"Apres Skiing"

Switching to a far more mainstream sport – eating – I'm obligated to mention Rocky Mountain Chocolate Factory (RMCF). Again, the story here is far more important than the financials, though the latter are very respectable. The company has a pristine balance sheet, pays a 2.5% dividend, and its franchise model provides an extra layer of "safety" to the business. Once you try their assortment of chocolates and candies you'll probably continue eating them until your arteries explode; and then you'll only be sorry you didn't get enough in before you popped. My first close encounter with RMCF dates back nearly a decade in Teton Village, WY, but it never even occurred to me that the company might be public until, for the last three nights, I noticed lines of people enjoying mid-teens temperatures as they patiently waited in a long line outside the local Park City, Utah store for an opportunity to get their fix. The closest I can bring you to tasting RMCF's goodies is its website. And after you get done drooling all over the keyboard, you just may end up putting some money where your mouth is...almost literally.

Happy New Year Minyans!!!
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