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A Few Reasons Why Wolverine World Wide Could Be a Good Investment

Wolverine World Wide (NYSE: WWW  ) , the Rockford, Michigan-based footwear manufacturer, has underperformed this year. The stock has shed 23% since 2014 kicked off, but the company looks ripe for a comeback. It could be a good long-term holding, as its recent results suggest, and a better buy than Deckers Outdoor (NYSE: DECK  ) and Skechers (NYSE: SKX  ) .

Wolverine recently released its fourth-quarter results, with revenue growing to $740.8 million from $652.5 million in the year-ago period. The company's sub-brands, such as Sperry, Saucony, Keds, and Merrell, performed strongly and contributed to revenue growth. Considering the diversity of its business, disciplined management, and strong portfolio of brands, Wolverine will likely perform even better in the future.

Wolverine World Wide's revenue grew by 5.6% last year. On a post stock-split basis, earnings per share came in at $1.43, which represents 25.4% growth since 2012. The company also made significant investments in Sperry; Wolverine has seven license agreements in place in a bid to make Sperry a preferred lifestyle brand among customers. Because of these efforts, Sperry's revenue increased 35% as compared to the year-ago quarter. 

What works for Wolverine?
Wolverine has a very strong and broad portfolio of products, which includes the likes of Hush Puppies, Dog Likeness, Saucony, etc. It aims to use this diversified portfolio to tap customers across different age groups, thereby increasing its addressable market and revenue growth opportunities.

Wolverine is focusing on various segments to improve its profitability in 2014. The company is looking at growth in the e-commerce segment to offset the effects of lower traffic for brick-and-mortar retailers expected this year. 

In addition, Wolverine is investing in a number of key brands that should lead to growth in the e-commerce segment. The festive three-week period of Easter, falling in the second fiscal quarter, should drive results in the quarter. Moreover, Wolverine expects growth in revenue from the Asia Pacific and Latin American regions throughout the year. Growth is expected to resume in Europe, where Wolverine expects business to stabilize, the Middle East, and Africa region. 

Wolverine's e-commerce segment should be one of its primary growth drivers. The company has a portfolio of 60 websites and 20 mobile sites, and it is further looking to bolster operations by recruiting a vice president for global e-commerce. This wide network of websites should help Wolverine tap more customers since it has a big portfolio of brands. After acquiring Collective Brands' PLG Brands a couple of years ago, four new brands were added to the portfolio.

Wolverine is expecting a soft start to the first quarter of 2014. But it also expects good growth in revenue due to the festive season and the exit strategy of Sperry from certain unprofitable regions during the second quarter of 2014. For the full year, Wolverine expects to deliver stronger, double-digit earnings growth on the back of gross margin expansion and increased brand awareness in various markets. 

Peer comparison 
Wolverine competes with Deckers and Skechers in the footwear market, and it is the cheapest of the three when comparing P/E ratios. Wolverine's P/E ratio of 26 is less than both Deckers (28.6) and Skechers (31.7). Also, if we look at earnings growth as projected by analysts, it is Wolverine which seems to be the best bet.

Wolverine's earnings are expected to increase by 14% per year for the next five years, with Skechers close behind at 15%. But as we saw, Skechers is quite expensive. Deckers, meanwhile, is expected to see just 9.4% earnings growth in the next five years on a compound-annual-growth-rate basis.

Moreover, Deckers has high short interest, which means that the market is betting against the stock. Its short interest as a percentage of float is an alarming 18.5% and is easily ahead of Wolverine's short percentage of 7.5%. Another factor that could tilt investors in Wolverine's favor is that it pays a dividend, yielding 0.9%, while neither Deckers nor Skechers pay a dividend.

Wolverine might get off to a slow start in the fiscal first quarter, but the company expects its performance to improve as the year progresses. Also, it is a better buy than both of its peers on various parameters, as we just saw. So, investors should definitely consider Wolverine if they are looking to make a new addition to their portfolio.

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