Yesterday, Sketchers (SKX) took it on the chin. Ouch! Down 21%.
Full disclosure, I own SKX. But, I have owned it since 2003 and even with the drop, it has grown at a compounded 20% per year since purchasing it. This is why I am patient and a long-term holder of equities. It pays!
With every investment there is good and bad. There is no free lunch.
Here is a little of what I see:
- Good
- Sales have gone from 1.5B in 2008 to 4.2B in 2017(12% CAGR)
- Earnings per share from .40 in 2008 to 1.14 in 2017 (12.3% CAGR)
- Very little long term debt.
- Significant international expansion
- Gross Margin climbing
- High level of cash (more than inventory value)
- Bad
- High level of inventory relative to sales.
- High China exposure and tariff risk
- Dual classes of stock ownership
- Trailing P/E 23
- SG&A climbing in most recent quarter
While I am not selling, I am a little cautious on their current financial position, but I am keeping a close eye on them. Being a smaller company, a big drop like yesterday could have been precipitated by a large institution dumping them. Those boys are as nervous as "a long tailed cat in a room full of rocking chairs". Your life isn't usually determined in a 3 month period, but in the stock world everything lives and dies on the quarter. Patience in the institutional world is akin to a four letter word.
SKX is on my shopping list should Mr. Market put any more significant “beat downs” on them. Everyone needs sneakers and they are establishing a strong international presence in some very populous countries. Sneakers also are replaced on a regular basis - it is a staple!
While my position has some significant operational risks, they turned the corner well several years ago with the exercise shoe (Shape-ups) debacle. Their numbers are, in general, pretty good. That means they have the “special sauce” of good leadership. Leadership is the hardest item to assess and it is also vital to really successful companies.
There is no perfect stock just as there is no perfect mate. But….I see more potential in their fundamentals.
