SKX, a tale of two stocks

Investment Analysis Clubs Saul’s Investing Discussions
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Hey guys, read these two carefully. They are two companies who reported today.

Net revenues increased 28%
Net income increased 13%
Diluted earnings were 45 cents, up 10% from 41 cents.

Net revenues increased 27%
Net income increased 30%
Diluted earnings were 43 cents, up 30% from 33 cents.

They are in basically the same business. One was selling at $94 in after hours, the other at $32 in after hours. Which would you rather have? Duh…

One was SKX, one was UA. Guess which was which. Do you think SKX is fairly valued at $32, or grossly undervalued?

Just wondering…

Saul

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I hear ya Saul on UA but some stocks will always be “expensive” and continue to be expensive on all valuation metrics…

I have been railing against AMZN for years and how they get a HUGE pass. The stock was up huge and they made like .17 cents a share? Apples cash flow is $10B a quarter and it doesn’t even justify the S&P PE. Seriously?

2001Cobra–happy hater of AMZN and proud owner of UA stock and added to it today

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One was SKX, one was UA. Guess which was which. Do you think SKX is fairly valued at $32, or grossly undervalued?
It depends on the share count. I would go with undervalued but then I thought I was being smart and buying on the dips with AMBA and Skyworks but that didn’t work out so well.
Ant

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One was SKX, one was UA. Guess which was which. Do you think SKX is fairly valued at $32, or grossly undervalued?

Rhetorical question. I saw the after hours price in disbelief. Then I read the press release. Bought some more. Then I listened to the conference call. Bought more twice.

I had predicted EPS of $1.65 per share before the 3:1 split which comes to $0.55. They reported $0.45. They also report a bunch of one-time expenses: $0.15. OK, you can argue that the ForEx expenses should have been predictable so in my opinion they hit right about where I expected.

I bought more for 2 reasons. First, there is the high discount for, in my view, no good reason. Second, the business seems to be performing on track. Backlog up 28%. Merchandise sales prices increasing. Huge growth in Asia. Strong growth in China. Same store sales up nicely. Sales and orders in October (so far) are going well. There really was not much negative except the lawsuit which management said would likely be resolved soon. There was some domestic softness but I think this is temporary.

I’m really scratching my head as to why the stock is down. I’ve written before about trying to find reasons for stock prices moves. I see little good reason so I disagree with the people who are scrambling to sell and I was buying their shares. I could be wrong, but I don’t believe I am on this one. We will see. As Rich said, everyone should do their own homework and for their own opinion. Good luck.

Chris

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There was some domestic softness but I think this is temporary.

This worries me the most as you can’t explain it from Forex or one time charges (looking at revenue). On the call they talked about “tough retail environment domestically” which didn’t make me feel easy at all. I got to look at Nike to see if they experienced the same thing.

Sincerely,
Charlie

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I got to look at Nike to see if they experienced the same thing

Nike reported a standout quarter. In my opinion, nobody gets a pass for forex headwinds. Everyone that has an international component to their business is facing that.

The North America business for Nike was up 9%, with futures growth for North America coming in at 15% yoy. Futures orders look out over the next 6 months.

I was close to initiating a starter position this past week. Glad I held off…I’ll have to dig in a bit more and see what’s going on.

best,
Michael
NKE ticker guide
long NKE

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OK, you can argue that the ForEx expenses should have been predictable so in my opinion they hit right about where I expected.

I am not sure why Forex should be looked at as a 1 time event. Maybe a company will say they missed earnings due to lower revenue due to exchange rates. But then it is not like earners are going to bounce back next quarter like the miss was just a 1 time blip. Unless foreign rates recover, going forward they will always have lower revenue from overseas unless they manage to raise prices.

They can forecast lower foreign revenue going forward so that they do not miss the earnings forecast but it is not like you should expect a jump in revenue the next quarter. It is not like a 1 time legal expense, it is a new reality to the business that they have to adjust to

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But one lost 5% of its value the other lost 30% in one day on earnings reports… which one is better to have when the market opens on that account?

Now, hyperbole aside, SXK is easily the better value here for new money, but I still disagree that UA is so much more ridiculously valued because I disagree that they are in the same business.

To me it is like comparing WMT to AMZN or F to TSLA.

I didn’t buy the dip today in UA, but I didn’t sell either. It found buyers around 90 and I’m sure will do fine. It does benefit from being one of those halo stocks that wall st loves, but it also has a lot more going for it with sports contracts, technology they are creating, and the overall premium brand factor (fad or not, it’s been going strong for over a decade) that people actually want.

I’ll likely add more to SKX though, maybe tomorrow, maybe later on. In spite of the fact that they solely make shoes, shoes I’ve never owned and likely never will, but as long as they execute on the business, they are priced very well. However they have little beyond that to provide a quantum leap in the future… but as long as they keep growing earnings, I’ll still hold the stock.

What concerns me here is this, you had many people chasing SKX up, who were only investing with the expectation of a huge ER beat. Now all of them need to either sell at a loss or wait for price to come back up to breakeven so they can get out. I understand that that is just price anchoring, but people do it, particularly large funds. So the question is why?

Well, they participants who actually will move the stock will want to move on to better opportunities rather than wait for price to come back. That creates overhead supply which could keep a lid on prices for a bit. Now I don’t what will happen, but if 35ish holds the next few days, I feel better about adding more here. If we can’t get back to that level I think we will get much better prices to buy around 25.

I agree that the selloff here is unwarranted and overdone, but they can change the supply and demand dynamics for a stock whether its undervalued, overvalued, or fairly valued based on your analysis.

In short, I’ll buy more at some point, but I’m not sure there’s a rush, and there may be some time of sideways movement before we can reclaim new highs on this one. It is frustrating though, because I do not think the results warrant this much of a selloff

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I am not sure why Forex should be looked at as a 1 time event. Maybe a company will say they missed earnings due to lower revenue due to exchange rates. But then it is not like earners are going to bounce back next quarter like the miss was just a 1 time blip. Unless foreign rates recover, going forward they will always have lower revenue from overseas unless they manage to raise prices.

I agree. I wasn’t saying that at all. Of the 15c about 7c was due to ForEx which puts it at 53c (vs my estimate of 55c). I say it’s in the ballpark and doesn’t justify a 30% haircut.

Chris

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shouldn’t the forex event affected earnings last quarter? Dollar has been stronger for several mths now.

I do not like the " slow retail environment domestically either" UA, nike did not have that.
This reminds me of Coach.
hope i am wrong
usha

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I don’t want to appear dumb on such an august board but this is the 3rd or 4th time I’ve seen SKX price quoted as $32, but except for this board’s posts, I see it at $46.

Someone please tell me nicely what I am missing?
Thanks guys,
Hola Saul,
PS if you didn’t have such a large position would you be buying at $46?
Mykie

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It’s the after hours price - what it traded at after the market closed. On finance.google.com look directly below the main price in the large font.

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Mykie,

SKX closed at $46.19. Results published after the market closed. Results not well received. The after hours market priced it at $32.65. There will be pre-market trading before 9:30 EDT where there may be more price movement and then the fun will begin when the regular session begins.

KC

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SKX opened at the Frankfurt Stock Exchange at 32.79.
Seems to confirm the US closing price - but only a very small volume traded so far.
Regards
Freddy

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Ant, A quick clarification: you said

It depends on the share count.

Actually it doesn’t! Two companies are making approximately the same amount PER SHARE (43-45 cents). For one company you pay $94 to get that amount of earnings. With the other company you pay $32 to get the same earnings - PER SHARE.

And, as an extra bonus, the one that is cheaper is also growing much faster.

It thus has nothing to do with share count!

Best,

Saul

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I am not sure why Forex should be looked at as a 1 time event. Maybe a company will say they missed earnings due to lower revenue due to exchange rates. But then it is not like earners are going to bounce back next quarter like the miss was just a 1 time blip. Unless foreign rates recover, going forward they will always have lower revenue from overseas unless they manage to raise prices.

Hi jdc,

Here’s how it works. Say last year your company had 100 million in sales in euros. Say the euro was at $1.30, so that translated to $130 million in dollars. This year they did great and grew their European sales to 120 million euros, but the euro is only worth $1.10, so it only translates to $132 in dollars and hardly looks like any gain, where at last years rate the same 120 million euros would have been $156 million, up $26 million. They say they had a loss in foreign exchange translation.

Next year, if the euro stays at the same lower level of $1.10, and they increase their euro sales by 20 million again to 140 million, that will translate to $154 million, up $22 million from this year. You’ll be able to see the gain and there won’t be any currency translation loss because there was no change in translation from this year.

This should be clear, but if not, please read it again.

Best,

Saul

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I do not like the “slow retail environment domestically either” UA and Nike did not have that. This reminds me of Coach.
hope i am wrong
usha

Usha, What in the world are you talking about?

Nike’s revenues were up 5%. That’s FIVE percent!!!
SKX’s were up 27%. That’s TWENTY-SEVEN percent!!!

And you are worried about SKX??? “Slow” is a matter of perspective.
Saul

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Hola Saul, if you didn’t have such a large position would you be buying at $46?

Hi Mikey, it was at $32 in after hours. I wouldn’t probably add at $46 but I would certainly add at $32 if I didn’t have such a large position already. But that’s JMO

Saul

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First off - I own UA and SKX. I do not consider them in the same industry as UA get majority of revenue from apparel, SKX majority on footwear. I also think the companies have very different visions (technology company versus footwear company) but that would be up for a big discussion.

On earnings discussion, you have SKX saying earnings hurt by foreign exchange issues, legal, etc. With UA, earnings fine but margins were hurt by their investments in Endomundo and Mapmyfitness acquisitions. Not sure of the amount it hit in this quarter, but those acquisitions were over $500M. So yes on approximate EPS but one company is investing the other is blaming.

In terms of growth, I think you would need to compare UA to SKX on its footwear business, which grew 161%, albeit on a smaller base of $160M total revenue. Income on this segment was 61% growth.

UA has 150 Million users on Connect Fitness, I don’t think anyone is placing a value on this, but, fwiw, twitter has 320 Million and street values their tweets at $20B.

FWIW - my kids (10-14) laugh that I have ownership in SKX as they believe their products to be very sub par and SKX products very limited in their schools systems.

FWIW 2nd: five years ago I asked my oldest (then 9) what three companies I should buy: said Apple, UA, and Comcast. Obviously he had Apple products, wore UA all the time, and Comcast is how he watched tv.

I think I will pole the family tonight on whether to buy more SKX.

Sox Nation

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Saul - domestic sales at SKX were 11.8% and this included a 6.9% price increase. So one could debate that domestic sales were roughly 5%. At least I am pretty sure about reading that last night.

Sox