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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information