Our Top Stock Idea

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Company	Deckers Outdoor (Nasdaq: DECK  )
Submitted By:	FoolSolo
Member Rating:	86.41
Submitted On:	12/1/2010
Stock Price At Recommendation:	$79.73

Deckers Profile

Star Rating (out of 5)	***
Headquarters	Goleta, California
Industry	Footwear
Market Cap	$3.2 billion
Competitors & Peers	Crocs (Nasdaq: CROX  ) Skechers (NYSE: SKX  ) Lacrosse Footwear (Nasdaq: BOOT  ) Nike (NYSE: NKE  )

Sources: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and Motley Fool CAPS.

This Week's Pitch:
Deckers is a company I have been watching for about 2 years, and throughout that time I have grown more and more fond of this company. To start with, they have decent product lines that are stylish, comfortable, durable, and they are priced in the low/middle range of footwear. There are certainly cheaper products, and certainly much more expensive products.

On the balance sheet, [Deckers] comes in pretty strong. To start with, they have zero debt, and over $250M in cash (which is down from $334M in previous quarter). Their Quick ratio is 3.24, Current ratio is 4.80, so they have sufficient liquidity and cash to keep operation humming along without any concerns. In Q3 (ended Sept. 30) the company reported $69M in net income, with total net sales up > 21%, with about 48% of that growth coming from international growth, versus 14.3% domestic growth. International sales now accounts for > 26% of their revenue, versus > 21% a year ago. This is a health sign that the company is growing their international presence. This prompted them to revise guidance upward for FY2010.

Another nice bonus in Q3 was that the company bought back 170K shares ($7.4M) and still has another $20M set aside for more stock repurchases.

The fourth quarter is obviously the best quarter historically because of the holiday season, and despite the upward revision, I tend to believe that Deckers will have an even better quarter than they are forecasting.

I like their prospects, but I am a bit concerned that their UGG product line is their biggest source of revenue by far (over 80%). They increased exposure to international markets, particularly EU, [Latin America] and Asia, could also create some ripples due to currency fluctuations. There is perhaps a bit more risk than I would like, but I still see a rather favorable risk/reward ratio, underscored by solid management, strong balance sheet, and a good old fashioned cash flow.

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