Is Deckers Outdoor Corp (DECK) Destined for Greatness?

Page 1 of 2

Every investor can appreciate a stock that consistently beats the Street without getting ahead of its fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with improving financial metrics that support strong price growth. Let’s take a look at what Deckers Outdoor Corp (NASDAQ:DECK)‘s recent results tell us about its potential for future gains.

Deckers Outdoor Corp (NASDAQ:DECK)

What the numbers tell you
The graphs you’re about to see tell Deckers’ story, and we’ll be grading the quality of that story in several ways.

Growth is important on both top and bottom lines, and an improving profit margin is a great sign that a company’s become more efficient over time. Since profits may not always be reported at a steady rate, we’ll also look at how much Deckers’ free cash flow has grown in comparison to its net income.

A company that generates more earnings per share over time, regardless of the number of shares outstanding, is heading in the right direction. If Deckers’ share price has kept pace with its earnings growth, that’s another good sign that its stock can move higher.

Is Deckers managing its resources well? A company’s return on equity should be improving, and its debt to equity ratio declining, if it’s to earn our approval.

By the numbers
Now, let’s take a look at Deckers’ key statistics:

DECK Total Return Price Chart

DECK Total Return Price data by YCharts

Passing Criteria 3-Year* Change Grade
Revenue growth > 30% 82.3% Pass
Improving profit margin (22.7%) Fail
Free cash flow growth > Net income growth (108.5%) vs. 74.1% Fail
Improving EPS 78.1% Pass
Stock growth (+ 15%) < EPS growth 39.4% vs. 78.1% Pass

Source: YCharts. * Period begins at end of Q3 2009.

DECK Return on Equity Chart

DECK Return on Equity data by YCharts

Passing Criteria 3-Year* Change Grade
Improving return on equity (10.4%) Fail
Declining debt to equity 544.4% Fail

Source: YCharts. * Period begins at end of Q3 2009.

How we got here and where we’re going
While Deckers does have some momentum going on the bottom line, it’s not enough to overcome declining margins and free cash flow. Deckers has had some well-known problems with material costs, so if those can be handled and surpassed, there’s no reason why the company shouldn’t earn more than a mere three out of seven passing grades next time we examine it.

Deckers’ stock has been weaker over the past year than this chart indicates, as it’s hit multiple 52-week lows before bottoming out in October. Since then, it’s marginally higher, but still far below where it once was. The problem stems from Deckers’ flagship Ugg boots, which make up, by far, the largest slice of the company’s revenue, and which have had their margins undermined by rising input costs. This is worse than the problem plaguing fellow shoemaker Crocs, Inc. (NASDAQ:CROX) , which produces its own proprietary material — but both companies suffer the same vagaries of a fickle consumer market. Both companies’ third-quarter earnings reports were lousy, which points to slackening demand.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!