Investing in Timberland Company

Posted on October 7, 2007 , filed under Stocks | Print This Post

I’ve updated this article over the weekend.

I first started watching Timberland Company [[TBL]] after using Joel Greenblatt’s formula for identifying potentially undervalued stocks. Joel’s formula covered in The Little Book that Beats the Market, centers on picking stocks with a high return on capital and earnings yield. Although it’s not recommended to do this, I use ROE and ROA criteria for comparable statistics due to the ease of research on Yahoo! Finance.

Timberland was among a list of companies I found with a high ROE and ROA. Let’s look at the fundamental statistics I care about:

Total Cash: 97.53M
Total Debt: 0
ROA: 11.62%
ROE: 15.49%
Trailing P/E: 15.36
Forward P/E: 17.01

Timberland is a well managed company with a strong established brand name. The company has turned in a few consistent quarters of declining earnings. Timberland faces some issues about slowing growth that have created a definite cause for concern. In addition to the slowing growth, the stock market has been soft on recommending retail stocks since there are lingering concerns of a credit crunch that may drive the country into a recession. Recent declining earnings and macroeconomic concerns are weighing down Timberlands stock price.

The bullish flipside to this, is the long-term track record of Timberland’s management. To combat slowing growth, Timberland has announced that it will shut down 40 brand name stores in an effort to restructure costs. The management has demonstrated its ability to turn in strong earnings in the past and does a fabulous job at managing debt.

I’ve taken a small 1000 share position in TBL and expect to see shares in the $21-$23 range before the end of the year.

*Disclaimer: The author owns 1000 shares of TBL.

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