Shares of Deckers Outdoor (Nasdaq: DECK ) hit a 52-week low yesterday. Let's take a look at how the company got there to find out whether cloudy skies remain on the horizon.
How it got here
Deckers peaked late last year after an impressive earnings report that hid some worrying numbers. Specifically, fellow Fool Sean Williams pointed out that the company had almost all of its eggs in an UGG-shaped basket. A company reliant on one trendy item can quickly go south if any number of headwinds blow. And blow they did: an underperform call from Wall Street, a swing and a miss on fourth-quarter expectations, and rising material costs for its signature shoes all contributed to a substantial decline. In fact, Sean pinpointed the company's high-water mark almost to the day:
DECK Total Return Price data by YCharts.
Lesson learned: Branch out! The same problem hit Crocs (Nasdaq: CROX ) a few years ago, and the foam-molded shoemaker has yet to recover, despite having since expanded its offerings substantially.
What you need to know
At first glance, Deckers looks both cheap and appealing, based on a few key metrics:
3-Year Annualized Earnings Growth
Net Margin (TTM)
|Nike (NYSE: NKE )
|SKECHERS (NYSE: SKX )
Source: Yahoo! Finance. NM = not material due to negative earning, TTM = trailing 12 months.
But when you dig deeper, there are a few worrying trends over the past few years, none more so than the company's dwindling free cash flow:
DECK Profit Margin data by YCharts.
Investors haven't responded positively to the company's buyback plan, despite the fact that it comes at a low point, which should at least give Deckers management more bang for its buck. Since that buck is bleeding (look at that free cash flow chart again), the plan makes no sense.
Both Nike and SKECHERS, on the other hand, have been forging ahead to new highs. Nike has that diverse product line in spades, and it's one of those rare brands that can draw consumers no matter the climate, both here and abroad. SKECHERS investors have far fewer tangible results to buy into, but there's always hope for a turnaround. That's a mildly positive sign for Deckers. If it can offer the market some signs of improvement, this 52-week low might quickly be left in the dust.
Where does Deckers go from here? Today, that depends almost entirely on the success of its UGG brand. Long-term investors should hope the company can diversify into appealing new styles. Any self-respecting trendsetter knows that the distance between hot and not is small. The Motley Fool's CAPS community has given Deckers a three-star rating, with 16% of our CAPS All-Stars expecting the stock to continue its 52-week trend. Fool contributor Brian Stoffel disagrees with them, and he put his money where his mouth is by adding Deckers to his Roth IRA in March.
Interested in tracking this stock as it continues on its path? Add Deckers to your Watchlist now for all the news we Fools can find, delivered to your inbox as it happens. Looking for some more great opportunities? The Motley Fool's picked three American companies set to dominate the world, featuring top brands with lasting appeal. Nike's one of them. You can discover the others when you get your copy of our free research report today.