Shares of Steve Madden
In similar fashion to rivals Skechers
Madden posted strong 2006 full-year results last Thursday, as total sales grew 26% and diluted earnings per share improved 32%. The company also ended the year with no debt, repurchased close to $30 million in stock, and issued a one-time dividend of $1 per share. Unfortunately, 2006 will be hard to beat, as management sees only a 3%-5% sales advancement and flat to slightly down earnings growth on a year-over-year basis.
That probably explains the recent weak stock performance and isn't the first time Madden has tempered its 2007 outlook, but based on next year's projections, the stock now trades at under 14 times earnings. That's pretty reasonable in absolute terms and also compares favorably to Skechers and Deckers that are trading closer to 18 times forward earnings. Other peers trade even higher; fad-friendly Crocs
A firm's price to earnings ratio is only one of many investment characteristics to mull over when deciding to buy or sell a security, but Madden's case highlights what the market is thinking about its prospects and how it compares to the competition. The stock may not move much, as 2007 is expected to be a mediocre year from an earnings perspective, but Madden has put together a solid track record of keeping its brands at the fashion forefront, and the current price may not be adequately reflecting this feat.
For related Foolishness:
- Kenneth Cole Stays on Its Feet: Fool by Numbers
- Skechers Has Sole
- Deckers Decked Out in Green: Fool by Numbers
Deckers is a former Motley Fool Hidden Gems selection. To see why the newsletter decided to sell, take a free 30-day trial to the service today.
Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.