“PE reversion to the mean is a given. I am saying that PE multiples change with the nature of the market. What is true in one period about PE (and other valuation ratios) may not be true in another.”
Yes, the multiple of valuation multiples change with the times. However, over time, they really do not change. I was around in 1999, when then valued at between $20-$40 billion Amazon was considered utterly and outrageously overvalued, unprofitable, and a fools investment. It has only gone up 15x since then, and it is still outrageously valued, unprofitable, and only valuable, to hear some, because the shares continue to climb and there are people who want in on it. the more things change, the more they say the same.
In the end, the #1 thing to look for is sustainable competitive advantage period (CAP) as it is known. Next to that is growth and addressable market that one can grow into (which, with great companies often just continues to enlarge). Overtime, through recession, panic, and recovery, the overall multiple will change, but it will ALWAYS be overvalued.
At least that is one system. There are some companies, like one company that makes stoves for restaurants that broke that mold, growing and growing in its mundane industry, to enormous returns. They exist.
But systematically, there are those few special companies to find and hold on to for the analytical reasons I cited.
As for Skechers…there is a lack of faith in its current CAP. But on the other hand, the downside is reduced. If Skechers really has a CAP, and will return to stealing market share, then by God! It will be a great investment.
The problem is, that is speculation and hope. We don’t know that. We do know that Amazon is dominant, that Amazon continues to take marketshare, that it is a monster!
My whole point in investing is to find a few companies that one can have enough confidence in, to devote 10, 20, 30% of a portfolio to it. As I have found that it is difficult to have market beating returns holding 10, 20, 30, stocks, but much easier holding 3, 4, 5 stocks, that one can be confident to just buy and hold for the long-term.
I make this pronouncement as through the years, and there are many here who can attest to this, I have made some very almost prescient investments. Buying at bottoms, selling at rapid multiples, time and time and time again. Doing this based upon long-term perceived multiples. Many of these companies collapsed at some point, but not before I got it.
But what I discovered was, with all that work, I would have done better (or just as well) to buy LTBH with a few great companies, and go live my life.
Skechers may indeed be a good rebound candidate. But I cannot base my future on hope or prognostication. I need real world information, evidence, that is undeniable, to make one confident in the investment. Sure, things will change over time. There is no certainty. But this is what I found over the years. And what I see is people who are too reactionary, to eager to follow irrelevant issues in an emotional fashion (and I don’t blame them, Wall Street creates these issues, and they are so good at creating churn and burn, and pessimism, and also undue exuberance).
Thus context for my opinions. SKX needs to become a great company again. It needs to steal marketshare again. If not, then although it is a low valuation, it will not fit into this paradigm if it does not have a definable CAP.
Tinker