Is $40 the End of Skechers’ Bullish Road?

Historically, $40 is a doomsday price for Skechers investors; but with a bullish outlook, will this time be different?

Apr 25, 2014 at 8:05PM

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.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Brian Nichols owns shares of Under Armour. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers