I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer, too. But even I have to admit some growth stories are bogus, hence this regular series.

Next up: Deckers Outdoor (Nasdaq: DECK). Is this supplier of stylish footwear the real thing? Let's get right to the numbers.

Foolish facts


Deckers Outdoor

Motley Fool CAPS stars (out of 5) ***
Total ratings 684
Percent bulls 82.6%
Percent bears 17.4%
Bullish pitches 68 out of 90
Highest rated peers Rocky Brands, R.G. Barry, Footstar

Data current as of Oct. 28.

Ah, UGG boots. They were the new things ... right up until they weren't. But even now I see women wearing these boots around the mall and at school, reminding me that for as volatile a stock as Deckers Outdoor has been, the wild ride may never really be over.

But it may not be as wild as it used to be. As All-Star investor 3DeeFool points out here, a sturdy balance sheet insulates the company against the inherent volatility of the apparel and footwear businesses. Deckers has $250 million in cash and investments and no debt. More than 10% of its market value is denominated in liquid assets.

Typically, it's the plodding dividend payers that hoard cash in this way. Deckers couldn't be more different. Last night, the company reported $1.07 in per-share earnings, well above the $0.93 Wall Street was expecting, The Associated Press reports. Management also increased full-year guidance. The stock is up more than 8% for the day as I write this.

The elements of growth


Past 12 Months



Normalized net income growth 30.8% 17.8% 42.1%
Revenue growth 19.5% 17.9% 53.6%
Gross margin 48.2% 45.6% 44.3%
Receivables growth 25.9% (29.3%) 49.7%
Shares outstanding 39.2 million 38.6 million 39.3 million

Source: Capital IQ, a division of Standard & Poor's.

Can we expect the rally to continue? Judging from the numbers in this table, yes. Let's review:

  • Revenue growth has returned after moderating in 2009. That's pretty normal for an apparel retailer whose business is subject to the macroeconomic mood.
  • Seeing normalized net income growth move up much faster than revenue suggests management is finding ways to squeeze additional efficiency, and therefore profits, out of the underlying business.
  • Rising gross margin reflects this efficiency, and may also indicate pricing power.

Competitor and peer checkup


Normalized Net Income Growth (3 years)

Crocs (Nasdaq: CROX) (31.6%)
Deckers Outdoor 34.4%
K-Swiss (Nasdaq: KSWS) Not measurable
LaCrosse Footwear (Nasdaq: BOOT) (6.7%)
Nike (NYSE: NKE) 4.6%
Rocky Brands 113.1%
Skechers (NYSE: SKX) 24.5%

Source: Capital IQ. Data current as of Oct. 28.

Rocky Brands is the top growth story from this table, and it may yet prove to be a good one. But it's also a microcap stock that carries more than 10 times as much debt as cash. Deckers is flush by comparison.

Skechers also looks to be an attractive alternative to Deckers. Trouble is, the stock took a beating recently when the company copped to inventory problems arising from canceled back-to-school orders. (Whoops.)

Grade: Sustainable
With weakening competition, strong cash flows, a sturdy balance sheet, and a well-managed portfolio of popular products, Deckers seems to be the top stock in footwear and a sustainable growth story.

Interestingly, the Street isn't pricing it that way. Deckers Outdoor trades for well below the five-year earnings growth analysts project, resulting in a 0.65 PEG ratio. That won't last; I've rated the stock to outperform in my CAPS portfolio.

Now it's your turn to weigh in. Do you like Deckers Outdoor at these levels? Let the debate begin in the comments box below. You can also ask Tim to evaluate a favorite growth story by sending him an email, or replying to him on Twitter.

Interested in more info on Deckers Outdoor? Add it to your watchlist by clicking here.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. 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 Fool is also on Twitter as @TheMotleyFool. Its disclosure policy thinks Monty Python is sustainably funny.