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The story of Google's conception at one of the founders' homes is legendary in the tech world. Conjuring up a global leader from one's bedroom is de rigueur in Silicon Valley these days.

However, the techies can't claim ownership rights to the home start-up. In the early 1970s, long before the internet came along, Gordon Merchant saw a need for quality boardshorts and decided to make a few pairs at his Queensland home.

With his wife's help, some basic sewing skills and the kitchen table, it wasn't long before the "boardies" were walking out the door of local surf shops. Merchant christened his company Billabong (BBG) and set it on a path to become a global board-sport fashion wholesaler and retailer.

Despite their success, brands such as Billabong risk becoming less relevant over time. Newer, edgier brands can use their smaller status to present themselves to the market as less corporate and therefore truer to the board sports they represent. The solution for established brands, of course, is to buy these young upstarts. Billabong has done this, adding labels such as Von Zipper, Element and Nixon, to name a few.

However, growth through acquisition is a well-worn path that too often fails to deliver shareholder value. Australia's corporate landscape is littered with wipeouts from overseas acquisitions.

Many of them provide little more than building blocks for the empires of the company executives. Foster's misguided foray into wine and AMP's disastrous expansion in Britain are prominent examples.

The outlook

For Billabong, though, the evidence suggests its expansion has been well conceived and executed. The company's return on equity has risen from 11.5 per cent in 2002 to 22.7 per cent last year. Debt has also increased considerably in this time, which has possibly enhanced the figures artificially. However, return on capital accounts for the increased debt and reveals a similar upward trend for the group's profitability.

Although the company's historic performance is impressive, the figures are due to take a significant turn for the worse once the year to June 2009 results are included. The success of Billabong's overseas expansion has left the company heavily exposed to the US. This will prove a big factor behind the company's first earnings decline since its 2000 listing.

Price

Billabong's stock price began trending down from a high of $17.96 in mid-2007. The onset of the credit crisis last year accelerated the slide, with Billabong ultimately hitting a low of $5.82 in February. Despite this broader weakness, the stock has enjoyed investor support in recent months, rallying to a high of $10.75 before a correction pulled it back to about $8.

Worth buying?

Although Australia's economic downturn will probably prove to be comparatively light, that will not be the case for the US. The country looks set to continue weighing on the company's earnings in the months ahead and potentially into next year.

Although Billabong is an attractive proposition from a long-term perspective, prudent investors will wait for evidence of improved conditions in the US before buying into the stock.