Is $40 the End of Skechers’ Bullish Road?

Skechers (NYSE: SKX  ) has a long and storied history of going from hot to cold and then back to hot again. On four separate occasions since the year 2001, Skechers' stock has seen $40 a share only to fall below $12 a share. Now, once more exceeding $40 following first-quarter earnings, and with the company's new products showing real strength against powerhouses like Nike (NYSE: NKE  )  and Under Armour (NYSE: UA  ) , should you buy into the idea that this time is different?

Bullish sentiment
Skechers CEO Robert Greenberg had some bullish remarks following the company's impressive first-quarter earnings report. Greenberg said, "We're on target for current trends with the most relevant and exciting footwear offering(s) in the company's history."

Greenberg and other executives were particularly bullish after the company reported its second-highest quarterly revenue in its 22-year history -- and during a period when other companies are blaming weather and a late Easter holiday season for poor sales.

Nonetheless, Skechers saw revenue total $546.5 million -- good for 21% growth -- and its gross margin increased from 42.7% to 44% year over year. As a result, its operating earnings for the quarter totaled $48.2 million, far better than last year's $15.3 million.

Is this Groundhog Day?
When Skechers dishes out a solid quarter, or reaches $40 a share, it's obviously a reason for optimism. But because of history, it's also reason for skepticism. Because after all, the company has seen this price before. And almost like clockwork it tends to peak and then reverse in both fundamentals and stock performance. However, for the first time, there are real reasons to believe that this time might be different, aside from bullish remarks from company execs.

First, Skechers' GoWalk line in the walking-shoe category is as dominant as any brand in any category. It was this shoe that helped drive recent growth, as its share in the category rose from 34% last year to 50.5% in the first quarter.

Moreover, unlike other categories, Skechers' GoWalk line doesn't face any notable competition, as Nike's share stands at just 4% in this category. Hence, walking shoes as a segment is very fragmented, at least for everyone except Skechers. For investors, this is reason to be optimistic that this latest rally might in fact last and push even higher.

New growth drivers
If you read Skechers' earnings report, you couldn't help but notice how proud company executives were of their GoRun line. This is the division that Skechers hopes will give it a piece of the very large and growing business of running.

In the report, Skechers noted that its GoRun line has already won two editorial awards; and most notably, the American winner of the Boston Marathon wore and endorsed Skechers' shoe. Clearly, with the media hype surrounding the event, this was a big win for the company.

Therefore, we will now wait and see if Skechers' GoRun line can take a bite out of this market from the likes of shoe powerhouse Nike and fellow rising star Under Armour; the latter saw footwear revenue soar 24% to $55 million in the fourth quarter led by its running brand. Either way, the publicity could give Skechers yet another growth segment.

A growing brand
According to SportsOneSource, year to date, Skechers is the fifth-largest sneaker brand in the U.S. and fourth if you count Nike and Jordan as one. This is significantly better than its seventh-place positioning last year and represents share growth of 22%, giving the brand a 3% share of the overall market.

With that said, Skechers' share growth is more impressive than Nike's and its Jordan brand, as well as Under Armour's. Combined, Nike and Jordan own 62.6% of the sneaker market, a gain of 6.5% year over year. Under Armour's share grew just 2% to approximately 2%, yet this is a segment for Under Armour that is growing at a 20%-plus annual rate. The reason for Under Armour's mild growth: international expansion and a sole focus on the running space.

Is $40 the beginning or the end?
With all things considered, Skechers is clearly a rising star in the sneaker business but particularly in the walking and now running segments. Therefore, at 16 times forward earnings, Skechers looks like a golden opportunity, even at $40.

The company's peers Nike and Under Armour trade at 22 and 46 times forward earnings, respectively, thus implying that even at a critical $40 price, Skechers potential return outweighs the risk. Furthermore, Skechers' accelerating growth and continued dominance in the walking segment imply that growth is not reaching a peak but rather just getting warmed up.

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