How High Can Skechers Fly?

Shares of Skechers (NYSE: SKX  ) hit a 52-week high yesterday and are back near those levels today. Let's look at how it got here and whether clear skies are ahead.

How it got here
Unlike most companies, who reach 52-week highs after outstanding financial performance, Skechers is reaching new highs on optimism more than anything else. The company has actually performed quite poorly recently but hopes to be setting itself up for future success.

In the most recent quarter, sales fell 26.2% to $351.3 million and the company swung to a loss of $0.07 per share. The number of pairs of shoes fell 40% from a year earlier when it cleared out inventory to introduce new styles. The hope is that the new line will come with increased sales and increased margins, and so far price per pair is up 5.8%, a small sliver of hope.

Some analysts seem to be buying in with Sterne Agee giving the stock a boost this week with an upgrade to a buy rating. Even the analyst pointed to Skechers turning a corner financially, so the recent rise in the stock is more speculation than a reward for what the company has actually done.

As you can see below, Nike (NYSE: NKE  ) and Deckers Outdoor (Nasdaq: DECK  ) have wildly outperformed Sketchers over the last five years, while Skechers has floundered along with Crocs (Nasdaq: CROX  ) .

SKX Chart

SKX data by YCharts

If Skechers has indeed turned a corner financially, there's a long hill to climb to catch competitors. Nike, Deckers, and Crocs all have double-digit profit margins and right now still look more attractive on a forward P/E basis.

Company

Price/Book

Price/Sales

Profit Margin

Forward P/E

Skechers 1.2 0.7 (5.6%) 26.0
Nike 4.9 2.1 9.7% 18.5
Deckers Outdoor 2.4 1.4 13.2% 9.4
Crocs 2.7 1.4 11.4% 9.1

Source: Yahoo! Finance.

Right now Skechers investors are betting on the future with very little to rely on from the past. That's a risky spot to be in if you're making consumer goods.

What's next?
With competitors trading at single-digit forward P/E multiples and performing far better financially, I think there are better bets out there than Skechers. That doesn't mean the stock will fall from here. From a price-to-book and price-to-sales ratio standpoint, Sketchers has a lot of upside, and if the company has indeed turned a corner financially, investors will be rewarded.

CAPS members seem to have a lot of faith in the stock's future, giving it a four-star rating (out of five). A total of 526 CAPS members have given the stock an outperform call versus 31 underperform calls right now.

This is really a bet on whether or not you think Sketchers can get back in style and improve financials as a result. I'm not ready to make that bet right now and I'll stick to more established names like Nike for my shoe investing.

Interested in reading more about Skechers? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Motley Fool newsletter services have recommended buying shares of Nike and Skechers. Motley Fool newsletter services have recommended creating a diagonal call position in Nike. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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