Zumiez: Shopping for Growth & Value

12/16/2014 7:00 am EST


John Reese

Founder and CEO, Validea.com And Validea Capital Management

John Reese selects his recommended stocks based on strategies of legendary market investors; here, the editor of Validea highlights a stock that scores 100% on James P. O'Shaughnessy's growth and value strategy.

Zumiez Inc. (ZUMZ) is a specialty retailer of action sports related apparel, footwear, equipment, and accessories operating under the Zumiez brand name; it operates 434 stores in the US and ten in Canada.

The first requirement of O'Shaughnessy's Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million.

This will screen out the companies that are too illiquid for most investors, but still include a small growth company. ZUMZ, with a market cap of over $1 billion, passes this criterion.

The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five-year period.

Zumiez, whose annual EPS before extraordinary items for the last five years (from earliest to the most recent fiscal year) were $0.30, $0.79, $1.20, $1.35, and $1.52, passes this test.

According to this strategy, the price/sales ratio should be below 1.5. This value criterion—coupled with the growth criterion—identifies growth stocks that are still cheap to buy.

ZUMZ's price/sales ratio of 1.37, based on trailing 12-month sales, passes this criterion.

The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion.

This gives you the opportunity to buy the growth stocks you are searching for, just as the market is embracing them. ZUMZ, whose relative strength is 73, is in the top 50 and would pass this last criterion.

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