Skecher’s (SKX) had the hammer lowered on them today by the market. Now would be a good time to look at the company’s fundamentals closely. The market is essentially “throwing them under the bus”.
With the numbers that came out today, they beat the market’s estimated earnings and sales. Good. Management signaled there was expectations of “troubled waters” ahead. That is what precipitated the downfall.
One interesting point is that when the market fell, it did it in a cliff fashion. Steady market price for 4 days before, a drop and then steady over today. There isn’t hardly any volatility today after the drop! That would lead you to believe the market is unwavering and exacting in the valuation. Hogwash! Analysts are only estimating the future. To me that means the “re-valuations” could be wrong as well.
The volume of the trades at the drop was really high and then tapered off. Tells me big investors (funds, etc.) were dumping it quickly. Computer algorithms? Maybe. No one wants to be holding the “hot potato”. It may be a “good” potato, but “let’s just get rid of it to be safe.”
Several years ago, SKX got into trouble with overstocking the “exercise shoes” they were selling. It was a gimmick shoe and it cost them. The positive thing is the company tightened up their operations and turned the situation around. That is a positive signal for management’s capabilities and management’s capabilities is the “special sauce” for any successful company.
While SKX’s market in the US doesn’t have the footprint (or sneaker print!) as they have international markets, much of their growth is internationally based. By expanding internationally, they are subject to many different countries’ business environments. Challenges are an inescapable reality of international expansion. The question is how well will they adjust to those challenges. Based upon their “track record” with the exercise shoe debacle, I would say they will make the necessary adjustments in "stride" to deal with the curve balls they are fielding.
Now, look at how their earnings and revenues have grown over the last 5 years comparing quarters to quarters and aggregate years to aggregate years. They have been growing steady with a few minor setbacks. Their debt is well wthin reason and trending downward. Take a look at their S&P trends on a CFRA presentation. They aren’t too bad.
Just like most careers, there are fits and starts to moving up. A company is no different. The key is how they react to those setbacks and reduce their effect upon their financial health. Their historical record shows they have reacted well in the past.
The rate and speed that big institutions dump anything that has even the slightest blemish on their record is interesting to note. It gives you a feel how nervous institutional managers are with the current environment.
This may be a good time to consider owning SKX. While the P/E is still rich for my liking, there are a lot of positive trends going on in this company. I have owned SKX for a long time at less than $3/shr, so I am not sweating.
Keep your head about you when others are losing theirs. Take a good look, as these are the moments when you can take advantage of “Mr. Market”! Are you going to step up!
