Should You Buy Skechers After the Selloff?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%.
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.
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, 2016By Ayush Singh