What happened
Shares of Skechers (SKX 2.77%) were down 4% as of 11:13 a.m. ET on Wednesday after the footwear maker delivered disappointing earnings results for the third quarter.
The company beat the consensus analyst estimate on revenue but missed on earnings estimates. Still, with the stock trading at a low valuation on top of solid revenue growth, investors have to wonder if the sell-off is overdone.
So what
Skechers reported solid revenue growth of 20% over the year-ago quarter. But earnings per share fell nearly 17% year over year. The miss on the bottom line can be attributed to higher freight costs and congestion at distribution centers that kept the company from meeting what it characterized as "strong demand."
Moreover, management said these problems will likely persist into 2023. Still, the market probably isn't giving Skechers enough credit for this level of growth in an environment where consumers are dealing with 40-year-high inflation. The quarter was the company's third consecutive quarter of record sales.
Now what
The market also seemed to punish Skechers for a weaker outlook than expected. Management guided for revenue to be between $1.725 billion and $1.775 billion next quarter, which is slightly lower than analysts' estimates calling for $1.79 billion.
Overall, investors have to feel good about the stock right now. Skechers has more cash than debt on the balance sheet, it's delivering profitable revenue growth, and the stock trades at an attractive price-to-earnings ratio of 13 based on this year's analyst estimate. If Skechers continues to maintain revenue growth over the next year, investors could be rewarded for their patience.
