Should You Buy Skechers After the Selloff?

Shares of Skechers (SKX) lost over a fifth of their value after the company shared a bad quarterly report last week. Given that Skechers was a growth stock, a miss on revenue didn’t go down well with the market as the stock dropped 22%.

I have been bullish on Skechers for a few years and the stock has returned triple-digit gains since my first call. I think the recent dip is exaggerated and opens up a buying opportunity for long-term investors.

The company reported EPS of $0.48, missing the consensus of $0.52. On the revenues front, Skechers reported sales of $877.8 million, up 10% year over year, falling short of the analysts’ target by $11 million.

To put the exaggerated selloff into perspective consider that Skechers revenue missed the estimates by 1%, yet the stock is down 22%.
Although Skechers’ domestic market is nearing saturation, the company is now focusing on the international market, which should continue growing at double-digit speeds. Moreover, the miss wasn’t as big as the market was making it out to be as Skechers Q2 FY2015 results were very strong and the company did very well to improve on that.

For the reported quarter, the international wholesale and retail business accounted for 42% of the business. Total international sales jumped over 25% and this growth is sustainable since the company’s management made it clear over the conference call that it will be focusing more on international expansion.

With a trailing P/E of 14, and a big net positive cash position, Skechers looks really undervalued after the selloff. Moreover, the company is still expected to continue growing by approximately 10% for the foreseeable future, thereby making the stock undervalued at current levels.

Conclusion

As mentioned above, Skechers is still expected to report about 9%-10% annual growth. Considering the expected growth and fundamentals, Skechers looks really undervalued after the exaggerated selloff. The company has a lot of room to grow internationally and markets like China should act as a great tailwind for the company going forward.

Although Skechers domestic growth seems to be saturated, the company’s international prospects should act as a tailwind in the long run. While the Skechers brand may not be as strong and well renowned as its peers like Nike and Under Armour, I think the stock has at least 20% upside from the current levels, making it a strong buy.

Disclosure: No Position
Published on Jul 25, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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