Deckers Outdoor: Tomorrow's Monster Stock

Stocks climbing to 10 times their original price are rare breeds -- but they're not impossible to find. Especially when you have Fools for friends. 

The market's best stocks include companies that have risen dozens of times in value by taking advantage of the market's weaknesses. These aren't penny stocks; they're viable companies with sound business prospects that are achieving phenomenal returns. Finding just one or two of these monstrously successful firms can help you establish a winning portfolio.

Stalking the monster
To find tomorrow's winners, we've enlisted the help of more than 180,000 monster trackers at Motley Fool CAPS who have successfully picked stocks that have doubled, tripled, or even quadrupled in price. This week All-Star member tradingfool1 gives us footwear maker Deckers Outdoor (Nasdaq: DECK) as his next monster pick. He made his mark with Ford, which surged 600% after he picked it to outperform the S&P 500, which rose only 76% in the same time frame.

Of course, you shouldn't jump into the breach just because an All-Star stock picker did. Just consider this a starting point for your own research of extreme buying opportunities.

Deckers Outdoor Snapshot

Sources: FinViz.com, Motley Fool CAPS. TTM = trailing 12 months.

A kick in the head
There's no arguing with the characterization of Deckers performance as being, as the old joke goes, one of the "Lee sisters": ugly, beastly, and ghastly. After guiding to subpar performance for 2012 earlier this year, the boot maker has followed through with dismal operations beset by rising sheepskin prices and the costs associated with opening new stores.

One thing I don't think is an issue is whether or not it's a fad. Deckers put that issue to rest years ago, and while consumer tastes come and go, its ability to grow sales while refreshing its fashion line-up confirms it's no Heelys skate shoe. An analyst just said yesterday that the brand has "faded" because he saw its iconic Ugg boots appearing on a flash-sale site after years of prices rarely being discounted, but then allowed it might be weather-related.

Value is what you get
Because 87% of its revenues last year were tied into the Ugg line, Deckers is going to rise and fall based on the brand's performance, and the impact of Europe's financial mismanagement continues to weigh heavily on it as sales plunged almost 15% on the Continent. It's not alone, as even mighty Nike (NYSE: NKE) had to restructure its Western European operations, and Wolverine Worldwide (NYSE: WWW) missed projections because it counts on the region for a quarter of its revenues.

Domestic sales, though, remained strong for Deckers, surging 37% and helping to boost consolidated revenues 13%, which beat management's expectations of 8% growth. Losses were also narrower than anticipated, but were much worse than the year-ago period.

I look at Deckers in a light similar to that of handbag maker Coach (NYSE: COH). The darling of the upward aspirational, its bags once skated the brink of irrelevance for being ubiquitous, and today it faces new competition from rivals like Michael Kors (NYSE: KORS). Yet it's still acknowledged as a quality brand for which consumers are willing to pay a premium.

Price is what you pay
Deckers' problems stem from forces beyond its control, and while that can pose a problem in the short-term, it doesn't necessarily indicate any issue with the business itself. The stock is down sharply today because of those analyst comments mentioned earlier, trading at almost 11 times past earnings and less than 10 times estimates. But with a lean and clean balance sheet, it is able to remain nimble despite analysts forecasting just 12% annual EPS growth over the next five years. That's a far cry from the 37% it was knocking out over the last five years and suggests Wall Street is simply piling on here.

I happen to agree with CAPS member MACDguy, who says its issues are transitory. "Their domestic sales of their primary brand grew in the double digits, Sanuk appears to have been a timely good buy, there direct online sales are finding traction, and Asian markets offer ample growth opportunity." Tell me in the comments section below whether you think Wall Street's got it right and Deckers Outdoor is suffering from brand fatigue.

A chance for scary growth
Deckers used to rule the retail roost, but The Motley Fool has found three companies ready to dominate now. Coach is one of them -- you can find out what the other two stocks are by downloading our free report. Just click here to receive it.