Investors did not take kindly to Skechers'
Investors were worried that the inventory buildup was related to a slow back-to-school season, which could indicate a coming decline in sales of the company's line of trendy toning shoes. Shareholders sold first and asked questions later, as the stock slid 18% on the day.
But while investors were busy selling, one hedge fund was finding value in the shares. An Oct. 28 filing with the SEC shows that Tiger Consumer Management, a hedge fund run by Patrick McCormack, had taken a 5.69% ownership stake in the company. That doesn't mean McCormack accumulated the entire position in one day. Institutional investors are required to report holdings to the SEC that exceed 5% ownership of a company, so recent activity put the fund's ownership over that threshold.
McCormack's fund had previously owned Skechers shares as of the first quarter of 2010. However, the fund sold its shares before the end of the second quarter, which means this recent purchase makes Skechers a new position in Tiger Consumer's portfolio.
What may have motivated Tiger Consumer to buy shares was Skechers' attractiveness as a value investment. Even with the stock up nearly 9% since the one-day drubbing, Skechers boasts an incredibly low ratio of enterprise value to EBITDA of just over 3. That compares to a figure closer to 10 for Deckers Outdoor
The lesson for investors is to look beyond the recent quarterly report and find value in strong companies. Shares of Skechers traded over $44 in June, declining more than 50% since. The inventory issues will have to be cleaned up, but sales remain extremely strong, and the company's brand is intact. While others were fleeing, value investors saw an opportunity to buy Skechers at tangible book value after the report, and jumped in.
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Andrew Bond owns no shares in the companies listed. Try any of our Foolish newsletters today, 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 Fool has a disclosure policy.