Skechers Is Looking Attractive for TradersSKX) has slipped to new 52-week lows after Morgan Stanley downgraded the stock to equal-weight from overweight yesterday. Morgan Stanley analyst Jay Sole cited Skechers’ move towards fashion-centric athletic clothing as the reason behind the downgrade. He slashed his price target from $41—which was too high and unrealistic to begin with—to $25, which is still almost 20% higher than Skechers’ current market price.
While I am unsure of Skechers’ long term potential, I think the market’s reaction to the downgrade was way out of proportion and makes for a good long trade going forward.
Skechers is currently trading 12x trailing earnings, which seems cheap given the company’s expected revenue growth of 10%+. Given that Skechers dropped almost 9% yesterday just because of a downgrade, I think it is the perfect time for investors to either buy the stock or go long via call options as I expect the Market to come to its senses very soon, at least for the short term.
Obviously, an underwhelming earnings or guidance can just as easily send Skechers crashing to $15.
But, I think Skechers will move higher leading up to the earnings due to its cheap valuation. Hence, I think investors looking to gain in the short term can consider buying call options.
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Moreover, Morgan Stanley already said the reason for its downgrade is already discounted in the current price, which is why the market’s reaction doesn’t make much sense. Fundamentally, Skechers was already cheap and a 9% drop doesn’t seem plausible at this moment.
However, since I’m only focusing on the short-term prospects of the stocks, I think Skechers could easily rise 5% to 10% in the coming days due to its strong fundamentals.
While I’m unsure about Skechers long-term potential now, I think the stock makes for a good short term trade after yesterday’s selloff. Going forward, Skechers could easily rise 5% to 10% leading up to the quarterly earnings date on the back of strong fundamentals.
Since Skechers is clearly a hated stock, I wouldn’t advise investors to hold the stock through the earnings, but would definitely recommend buying call options on yesterday’s dip to make a quick profit in the short-term.
Disclosure: No Position
Published on Sep 26, 2016By Ayush Singh