Deckers Outdoor Corporation (DECK) designs casual lifestyle and high-performance footwear under the brand names UGG, Teva, Sanuk, Hoka, and Koolaburra. The Goleta, Calif.-based company has an international presence; its products are sold in more than 50 countries worldwide. In addition, DECK has an ISS Governance QualityScore of 1, indicating low governance risk.

However, DECK shares have been losing momentum lately because investors are concerned about the impact of the current supply chain headwinds on the company’s profit margins. 

The stock has declined 20.6% in price over the past three months and 18.4% year-to-date. And bearish analyst sentiment regarding DECK’s about-to-be-reported quarterly performance has caused investors to avoid the stock.

Here is what could shape DECK’s performance in the near term:

Stable Growth Story

DECK’s revenues have grown at a 13.4% CAGR over the past three years, while its net income improved 42.8% over this period. The company’s EBITDA has improved at a 27% rate per annum over the past three years, while its levered free cash flow rose at a 12.9% CAGR. In addition, both its tangible book value and total assets have grown at a CAGR of 21.9% over the past three years, while its EPS has improved 42.8% over the past three years.

Mixed Growth Prospects

Analysts expect DECK’s revenues to increase 9.5% in its fiscal year 2022 third quarter (ended December 2021), 13.3% in the current  quarter, and 15.5% in the next quarter. The consensus EPS estimate indicates a 28.6% improvement year-over-year in its fiscal 2022 fourth quarter (ending March 2022). However, the company’s EPS is expected to decline 9.9% in the about-to-be-reported quarter and 25.1% in the next quarter.

Stretched Valuation

In terms of the forward non-GAAP P/E, DECK is currently trading at 19.98x, which is 48.5% higher than the 13.46x industry average. Its 0.46 trailing-12-month PEG ratio is 247.8% higher than the 0.13 industry average. In addition, DECK’s forward Price/Sales and EV/EBITDA multiples of 2.70 and 13.47, respectively, are significantly higher than the 1.06 and 9.65 industry averages.

The stock’s 26.43 forward Price/Cash Flow multiple is 132.7% higher than the 11.36 industry average, while its 5.07 forward Price/Book ratio compares with the 3.01 industry average.

POWR Ratings Reflect Uncertainty

DECK has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

DECK has a C grade for Momentum, Growth, and Sentiment. The stock is currently trading below its $370.35 and $376.58 respective 50-day and 200-day moving averages, indicating a death-cross downtrend, in sync with the Momentum grade.

The company’s trailing-12-month revenues has increased 29.1% year-over-year, while its trailing-12-month levered free cash flow declined 10.2% from the same period last year, justifying its Growth grade. In addition, DECK’s mixed earnings growth prospects account for the Sentiment grade.

Among 64 stocks in the Fashion & Luxury industry, DECK is ranked #54.

Beyond what I have stated above, one can view DECK ratings for Quality, Stability, and Value here.

Bottom Line

With a 3.63% market share, DECK is a rapidly growing footwear company with an increasing customer base. Analysts expect the company’s market share and revenues to rise significantly in the near term. However, current supply chain bottlenecks and high airfreight costs are expected to eat away at DECK’s profits. Regarding this, Williams Trading analysts Sam Poser recently commented, “Merchandise margins should continue to improve, but the cost of airfreight will remain a headwind through 4Q22, and perhaps leak into 1Q23.” Given this backdrop, we think investors should wait until the global economy stabilizes before investing in the stock.

How Does Deckers Outdoor Corporation (DECK) Stack Up Against its Peers?

While DECK has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Shoe Carnival, Inc. (SCVL), J. Jill, Inc. (JILL), and Oxford Industries, Inc. (OXM), which have an A (Strong Buy) rating.

DECK shares were unchanged in premarket trading Friday. Year-to-date, DECK has declined -18.42%, versus a -9.20% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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