Investment Jungle

Investment Jungle reader Christine has requested that we have a look at Coldwater Creek Company which trades on the NASDAQ with the symbol CWTR. Christine likes retail. Let’s hope this is a Rule #1 stock.

Company Profile:

From Yahoo Finance

Coldwater Creek, Inc., together with its subsidiaries, operates as a multi-channel specialty retailer of women’s apparel, accessories, jewelry, and gift items in the United States. It primarily focuses on women 35 years of age and older. The company operates through two segments, Retail and Direct. The Retail segment consists of company’s premium retail stores, resort and outlet stores, and day spas. This segment’s day spas provide spa treatments, such as massages, facials, body treatments, manicures, and pedicures, as well as an assortment of relevant apparel and a line of personal care products for women. As of March 26, 2007, Coldwater Creek operated approximately 245 retail stores.

This company has a market capitalization of $2.26B.

Financial Analysis:

Let’s sharpen our pencils and run through the numbers.

The Return on Invested Capital looks good on this company. There was a bit of a lull in 2001 and 2002, but other than that, the management has had good returns. The 5 year average is 15.40% and last year, management produced 17.40%.

The Return on Equity numbers look good as well. The 10 year average is 14.12%, the 5 year average is 13.55%, and last year’s ROE was 17.32%.

Equity growth rate has been very good except for 2001. But even with that no growth year, the 10 year average is still a very healthy 21.15%. The 5 year average is a better 24.24%. And last year produced an equity growth rate of 26.23%. Definitely headed in the right direction.

Earnings per share growth rate has been a bit more erratic with some fairly major swings. In 2001 (which we have seen to be an off year already), had a negative growth rate of 83.85%. However, 2002 bounced back with an incredible 361% growth rate!

Sales growth rates have been pretty steady although there were 3 no growth years in 1999, 2001, and 2002. But over the 10 year period, growth rates averaged 14.62%. Over 5 years, the sales growth rate was 17.80%. Over 3 years it was 27.20% and last year produced 35.26%. Trend is going our way.

And the cash flow growth rate has been rock solid. Over the 10 years, growth rate was 18.36%. The 5 year, 3 year and 1 year numbers are all over 35%. This is pretty amazing cash flow growth rates.

So far, the Big Five look solid to me. Let’s find a sticker price.

Stock Analysis:

Looking at the historical P/E information, the 10 year average is 34.33, the 5 year average is 29.96 and the current P/E is 40.15. These are fairly high P/Es. But let’s take the most conservative P/E of 29.96 for our future P/E.

The equity growth rates have been very good. The 10 year average is 21.15%, the 5 year average is 24.24% and last year’s was 26.23%. Once again, being Mr. Conservative, I’ll take the 10 year average at 21.15% as my future EPS growth rate.

Just to confirm my estimate, I’ll check with the analysts. Excellent. The analysts have CWTR pegged for 26.20% future EPS growth rate. My estimate is pretty accurate, and more conservative, so I’ll use my estimate.

Add a little water. And presto! I come up with a sticker price of $30.27. And of course, that puts the MOS price at $15.14. As of Wednesday’s close, the current price is $24.09. Well, look at that. We have found (or I should say Christine has found) a stock trading below its sticker price! It is currently selling at a discount of 20.43%. It is however selling at a premium of almost 60% over the MOS price.

See my calculations here.

Conclusion:

Well, I would have to say that this stock does meet our Rule #1 criteria. The Big Five look good. And it is currently selling at a discount to the sticker price. I will have to add this stock to the watch list. Thanks for the tip Christine.

Christine also requested a look at Children’s Place retail store (PLCE). Since her first tip has lead to a watch list candidate, I’ll check out this new one tomorrow. Can Christine go 2 for 2? Stay tuned.

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