Is Skechers Still a Buy North of $46?

Prior to 2014, Skechers (NYSE: SKX  ) had a long history of ups and downs, including rallies to $40 before reversing to trade lower. Yet something has changed, and now at $46 Skechers is a legitimate player in several key shoe categories, competing against the likes of Nike (NYSE: NKE  ) and Under Armour (NYSE: UA  ) . The big question for investors, however, is whether it's still a good investment.

Growing fast and stealing market share
Since 2013, Skechers' stock has significantly outperformed both Nike's and Under Armour's, with gains of 150%. The footwear company has completely rejuvenated its brand while controlling expenses and inventory. It has also remained dominant in the walking category but has found new growth in the running space.

The company's first-quarter earnings report was a quintessential blowout by all measures, as its $546.5 million in revenue was created from growth of 21% year over year. During Skechers' last year, it was dominant in the walking-shoe industry, seeing its market share rise from 34% last year to more than 50% now. Notably, the company has no real competition in the space, as it remains highly fragmented, with Nike controlling just a 4% share.

How's it priced?
Investors were fully aware of the success in walking, but growth in the company's GoRun shoe line has proved to be a pleasant stock-driving surprise. As a result, Skechers' U.S. market share of the sneaker business has grown 22% year over year, and it's now the fifth-largest brand, with a 3% share of the market. Granted, Skechers still lags Nike, which owns 62.6% of the market with both the Nike and Jordan brands, but it is larger and faster-growing than Under Armour's shoe business. 

Source: MarketWatch. Data YTD through April 12, 2014/SportsOneSource.

With all things considered, we know Skechers has been a good investment over the last couple of years, but is it still attractive to new investors? Certainly, the company's growth streak is expected to continue, as the CEO recently said that its backlog and orders have been strong and continue to grow. However, is the stock expensive?

Metric 

Skechers

Nike

Under Armour

Market Cap (billions)

$2.3

$66.8

$11.4

Forward P/E Ratio

17.4

22.6

45.8

2014 Expected Revenue Growth

16.7%

9.5%

25.7

2015 Expected Revenue Growth

10.8%

8.5%

22.2

Data source: Yahoo! Finance.

In looking at the above chart, we can identify several different facts. First, Skechers is much smaller than either Nike or Under Armour, thus we can conclude that it has more market share to gain. Next, in comparison to Nike alone, Skechers is far cheaper on a forward P/E ratio basis yet has greater expected growth in each of the next two years.

Lastly, Skechers and Under Armour are not equivalents, as the majority of the latter's revenue is created from apparel, although it does have a growing shoe segment nonetheless. However, there is a rather large disconnect between growth and valuation of these two companies. Specifically, Under Armour is more than twice as valuable yet is not growing twice as fast.

Foolish thoughts
By all measures, Skechers still looks attractively priced, or at least next to Under Armour and Nike. Moreover, it's rather interesting that despite its margin improvements and encouraging outlook, it's not a widely covered stock by analysts. Hence, this could signal that Skechers is flying under the radar of Wall Street, and that there could still be several more upside surprises in the future. In looking at the shoe industry, which has been a bright spot in the U.S. market, Skechers still looks ready to fly, both its stock and in fundamentals.

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