Skechers

Fools,

After the recent pullback, Skechers has become interesting to me. Having not done any analysis in the past and missing the extremely good increase in the stock the last couple of years, I wanted to try to determine how much runway is left.


Qtr	EPS	QoQGr	TTMEPS	TTMGr	Hi	Lo	Close	P/E	P/E Hi	P/E Lo	1YrPeg
Mar-11	0.24				$23.66	$17.86	$20.54				
Jun-11	-0.62				$21.47	$13.29	$14.48				
Sep-11	0.17				$17.88	$13.31	$14.03				
Dec-11	-1.18				$15.42	$11.75	$12.12				
Mar-12	-0.07	-129.2%	-1.70		$14.70	$11.21	$12.72	-7.5	-8.6	-6.6	
Jun-12	-0.04	-93.5%	-1.12		$21.50	$12.50	$20.37	-18.2	-19.2	-11.2	
Sep-12	0.22	29.4%	-1.07		$22.37	$18.07	$20.40	-19.1	-20.9	-16.9	
Dec-12	0.08	-106.8%	0.19		$20.74	$15.18	$18.50	97.4	109.2	79.9	
Mar-13	0.13	-285.7%	0.39	-122.9%	$22.61	$17.02	$21.15	54.2	58.0	43.6	-0.44
Jun-13	0.14	-450.0%	0.57	-150.9%	$24.50	$19.99	$24.01	42.1	43.0	35.1	-0.28
Sep-13	0.53	140.9%	0.88	-182.2%	$31.56	$23.93	$31.11	35.4	35.9	27.2	-0.19
Dec-13	0.28	250.0%	1.08	468.4%	$34.95	$26.62	$33.13	30.7	32.4	24.6	0.07
Mar-14	0.61	369.2%	1.56	300.0%	$36.78	$26.46	$36.54	23.4	23.6	17.0	0.08
Jun-14	0.68	385.7%	2.10	268.4%	$47.53	$33.14	$45.70	21.8	22.6	15.8	0.08
Sep-14	1.00	88.7%	2.57	192.0%	$64.69	$44.46	$53.31	20.7	25.2	17.3	0.11
Dec-14	0.43	53.6%	2.72	151.9%	$62.34	$47.76	$55.25	20.3	22.9	17.6	0.13
Mar-15	1.10	80.3%	3.21	105.8%	$74.25	$55.23	$71.91	22.4	23.1	17.2	0.21
Jun-15	1.55	127.9%	4.08	94.3%	$114.79	$70.00	$109.79	26.9	28.1	17.2	0.29
=============================================================================================
Sep-15	1.35	34.8%	4.43	72.3%	$102.43	$77.75	$140.00	31.6			0.44
Dec-15	0.68	58.1%	4.68	72.0%	$108.21	$82.14	$140.00	29.9			0.42
Mar-16	1.51	37.2%	5.09	58.5%	$117.68	$89.34	$140.00	27.5			0.47
Jun-16	2.13	37.2%	5.66	38.8%	$131.03	$99.47	$140.00	24.7			0.64
Sep-16	1.85	37.2%	6.17	39.3%	$142.64	$108.28	$140.00	22.7			0.58
Dec-16	0.93	37.2%	6.42	37.2%	$148.50	$112.73	$140.00	21.8			0.59

The company has been performing really well. In fact, at today’s price of about $140/share, its P/E of 34.3 is higher now than at any time since September, 2013 when it hit a high of 35.4. Earlier this quarter, the P/E reached 39.2 when the stock price was at $160.

Okay, the stock is not cheap. But considering its growth projections, it’s not expensive. However, it looks like I missed out on the incredible run the company has had over the last year.

However, if they hit analyst estimates of $6.42 by the end of 2016, today’s price would reflect a P/E of 21.8. Such a price to earnings 16 months from now within the low-middle part of the P/E range over the last few years. This seems okay. But I won’t expect to earn as much as many of you have earned over the past year.

Also, Quarter over quarter earnings were up over 127% the last quarter. Earnings aren’t expected to grow nearly that fast with analysts projecting just under 35% growth this quarter.

I’ve been a customer of Skechers for years, buying sneakers at the warehouse store every year or so when I traveled to Houston. I thought that the company wasn’t a good brand candidate, because of the way the product was sold.

Over the last few years, Skechers has done a pretty good job lining up interesting people to represent the brand. These include Joe Montana, Ringo Starr, Meb Keflezighi, Kara Goucher, model Kelly Brook, Pete Rose Mariano Rivera, Sugar Ray Leonard. Plus, they are ding a lot of marketing to children, having used games as goodies in the show box. One doesn’t have to be an athlete to identify with the brand, but some really great athletes do.

Skechers brand is for real. Also, they have really nice company stores and a lot of shelf-space in the athletic stores.

Revenues look pretty good.


Rev	Mar	Jun	Sep	Dec	Tot
2011	476.2	434.4	412.2	283.2	1,606
2012	351.3	384.0	429.4	395.6	1,560
2013	451.6	428.2	515.8	450.7	1,846
2014	546.5	587.1	674.2	569.7	2,377
2015	768.0	800.5			1,568

So do gross profits.


GrPr	Mar	Jun	Sep	Dec
2011	192.6	143.3	175.2	112.6
2012	155.7	171.3	187.8	168.5
2013	192.7	269.4	230.5	200.6
2014	240.4	269.4	304.5	257.6
2015	332.5	374.6		

GM	Mar	Jun	Sep	Dec
2011	40.4%	33.0%	42.5%	39.8%
2012	44.3%	44.6%	43.7%	42.6%
2013	42.7%	62.9%	44.7%	44.5%
2014	44.0%	45.9%	45.2%	45.2%
2015	43.3%	46.8%		

Where it gets interesting is the net margin. The acceleration is pretty impressive.


EBITMar	Mar	Jun	Sep	Dec
2011	2.9%	-11.7%	0.4%	-33.7%
2012	-2.1%	-1.1%	3.6%	1.7%
2013	2.2%	3.1%	8.2%	3.7%
2014	8.1%	8.6%	10.1%	5.0%
2015	10.5%	14.0%		

Cash is increasing really well and LT debt is now a really small burden to the company.


Cash	Mar	Jun	Sep	Dec			LT Debt				
2011				$351			2011				$81
2012	$392	$374	$308	$326			2012	$78	$71	$70	$129
2013	$265	$333	$333	$372			2013	$126	$123	$120	$118
2014	$329	$415	$441	$467			2014	$116	$125	$128	$35
2015	$397	$514					2015	$35	$26		

The company has been performing really well and lining up people with extremely wide appeal to create the brand. While, according to historical value points, the company isn’t cheap, I think it’s a really good time to start investing, and I’ve done so over the last few weeks during the minor correction.

If I think about the relative value of the company to Adidas (about ½ the value), I think there is a lot of room to run. Also, their market cap is only about a third of Under Armor’s and less than a tenth of Nike’s.

Given the expected performance, the valuation should remain under a 1 Year Peg of 1, even with nice earnings growth through the end of 2016. If they hit $6.42 in earnings by the end of 2016, this is what the stock price will do compared to today’s price of $140:


15	20	25	30	35	40
$96	$128	$161	$193	$225	$257
-31%	-8%	15%	38%	61%	83%

DJ

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