2 Reasons to Like DECK and 1 to Stay Skeptical

Over the past six months, Deckers’s shares (currently trading at $106.25) have posted a disappointing 10.1% loss, well below the S&P 500’s 15.7% gain. This might have investors contemplating their next move.

Following the drawdown, is now the time to buy DECK? Find out in our full research report, it’s free.

Why Does Deckers Spark Debate?

Established in 1973, Deckers (NYSE:DECK) is a footwear and apparel conglomerate with a portfolio of lifestyle and performance brands.

Two Things to Like:

1. Constant Currency Revenue Drives Growth

Investors interested in Footwear companies should track constant currency revenue in addition to reported revenue. This metric excludes currency movements, which are outside of Deckers’s control and are not indicative of underlying demand.

Over the last two years, Deckers’s constant currency revenue averaged 18% year-on-year growth. This performance was solid and shows it can expand steadily on a global scale regardless of the macroeconomic environment.

2. New Investments Bear Fruit as ROIC Jumps

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Deckers’s ROIC has increased significantly. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

One Reason to be Careful:

Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Deckers’s revenue to rise by 8%, a deceleration versus its 19.1% annualized growth for the past five years. This projection is underwhelming and implies its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

Final Judgment

Deckers’s merits more than compensate for its flaws. With the recent decline, the stock trades at 17.5× forward P/E (or $106.25 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

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