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Wednesday, May 21, 1997
Ride,
Inc. HOW DID IT FIND TROUBLE? Talk about a ride! A three-year stock chart of this once hot snowboard manufacturer looks like Mt. Everest. Way up and waaaaay down. Ride went public in 1993 at a split-adjusted $2 per share. Eighteen months later, it was riding high at $35 on the strength of killer revenue and earnings growth leading to earnings per share (EPS) of $0.57 for FY95. Then, with the PE at 61, or about twice the company's own growth projections, reality hit. An analyst report put industry growth at just 15%, even as competition was heating up. The avalanche that followed has been accompanied by the exit of the company's founders, including former Chairman Roger Madison, Jr., who resigned on April 11. The stock's recent slide came on a spate of bad news. On December 31, the company pre-announced a loss for the fourth quarter and for the year, even after backing out $10 million in inventory write-offs, restructuring charges, and "management transition expenses." On March 17, current and former Ride officers were sued by a shareholder alleging that insiders had profited while making misleading public statements. Then on April 24, Ride announced a first quarter loss of $0.20 a share, as sales from ongoing businesses dropped in half from the year-ago period due to excess inventory throughout the industry, particularly in Japan. BUSINESS DESCRIPTION Based in Preston, Washington, Ride is one of four medium-sized companies that compete with industry leader Burton Snowboards. Primarily through specialty snowboard and ski shops and regional sporting goods stores, Ride sells 25 snowboard models (prices $199 to $499), bindings, boots, and snowboard-related apparel and accessories. The company's brand names include "Ride," "5150", "Liquid," Preston," and "Cappel." In 1995, Ride beefed up its manufacturing facilities so that it now has the capacity to make the majority of its boards in-house. In 1996, 42% of sales came from the U.S. and 37% from Japan. Last year, snowboards accounted for 57% of the company's sales, but a growing market for apparel related to the trendy snowboard subculture made clothing Ride's second largest source of revenue. FINANCIAL FACTS Income Statement
12-month sales: $67.9 million
12-month income: $2.8*
12-month EPS: $0.26*
Profit Margin: 4%
Market Cap: $37.7 million
(*Excludes one-time charges and gains)
Balance Sheet
Cash: $1.6 million
Current Assets: $22.3 million
Current Liabilities: $3.9 million
Long-term Debt: $0.6 million
Ratios
Price-to-earnings: 13.5
Price-to-sales: 0.56
HOW COULD YOU HAVE SEEN IT COMING? In the fall of 1995, the Fool Portfolio made a nice chunk of change from Ride. Momentum investors sent the shares to another double after the Fool sold, leaving sensible observers to wonder if the company deserved a PE of 60. Investors also might have predicted growing pains, problems with inexperienced managers, and the inevitable entrance of new competitors into a hot market segment. Last November, The Wall Street Journal covered Ride's troubles. That article could have alerted investors to keep an eye on the company's progress in revamping its business. When the losses and write-offs mounted last December with still no recovery in sight, one could have figured that it would take time for the new management to grapple with a changing market and reverse the stock's descent. WHERE TO FROM HERE? Analysts have recently dropped EPS estimates to a loss of $0.08 for FY97 and a loss of $0.07 for FY98. One revised number puts the FY97 loss at $0.25 per share, suggesting that the short-term results could be worse than the consensus numbers reveal. The question is: Will the stock ever recover? And if so, when? The short-term continues to look dicey. As CEO Robert Hall said in an April press release, "An inventory storm is blowing over the industry, causing brand and company consolidation just as we expected." In the long term, industry consolidation may pay off for Ride, which is likely to weather the storm given its quality products, decent balance sheet, and recent reorganization. The last time Ride sold for less than $4 a share, it was a much smaller, less experienced company. So a recovery in the stock price seems likely, though not yet visible. The next window on the Ride's future comes June 30th when the company announces pre-season orders. -Louis Corrigan ([email protected])
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