Rule One Investing Blog

I’ve been looking at some of the stocks in my watch list. One of these is Cold Water Creek (CWTR).

Coldwater Creek is a specialty retailer of Women’s clothes and apparel. With two main segments retail and direct. Let’s take a look at the growth rates numbers. The ROIC is 7% last year, which violates the 10% rule from Rule #1, however, the 5 year growth rate is 14%. The other growth rate numbers are all very high, over 20%. The equity (BVPS) has been over 20% for the past 9 years and was 26% last year (2006).

What about the four M’s?

Meaning – Women’s clothing… Not really my bag. However, it is retail.

Management – The management just recently announced (Oct 2007) they’re buying back shares. Today alone, the chairman bought 925,000 shares. This can be seen as either the board of directors trying to regain confidence in the stock. Or the management is trying to get shares back while at a cheap price.  I worry a bit about the management after reading articles like this.  However, I see the buyback as a positive boost to the stock and company.

Moat – This is the only one that really worries me. Others competitors such as Ann Taylor or Chico’s are also making a serious threat in this market. So do they have a Moat? Yes.  But it’s being / is breached.

Finally the Margin of Safety (MOS)

• Growth Rate = 20%
• EPS = 0.32
• PE = 28 (average 10 year)

This puts a Margin of Safety at $7.01.

The only other thing that worries me is that there has been lots of bad news as of late. The company announced a fourth quarter loss of $0.16 to $0.20 per share is expected. This is what has actually brought the share price down as of late. However, the company has had very steady high growth rates for the past 9 years. Can they continue these high numbers?

Would I be happy to own this business for the next 10 years? Yes!  Women love to shop and as long as they can keep a good product line then they’ll continue with good growth.  However, that being said I think watching this company and the management will definitely be necessary.

The current price is $6.42, January 31st, 2008.  If you notice on the chart below we get three green signals on January 18th.

• I purchased 25 stocks at $6.15 on January 31st, 2008.