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Should You Avoid Skechers USA Inc (SKX)?

Skechers USA Inc. (NYSE:SKX) has delivered another quarter of strong financial and operational results. The sports shoe maker reported net revenue of $800.5 million, up 36% year-over-year. The company’s top-line has been mainly driven by unusually strong demand after the U.S. West Coast port strike and by the increased demand of back-to-school items both domestically and internationally. In addition to that, Sketchers posted net earnings of $79.8 million or $1.55 per share in the second quarter of 2015, compared to $34.8 million or $0.68 per share reported a year earlier. The company believes that it will be able to sustain the current growth momentum through the rest of 2015 and into 2016, upheld by the so-called athleisure trend in the U.S. retail sector. The shares of Sketchers have grown by over 168% year-to-date and are up by 16.69% in today’s intraday trading session.


Is Skechers USA Inc (NYSE:SKX) a buy here? Investors who are in the know are in a bearish mood. The number of bullish hedge fund bets shrunk by three in recent months. Heading into the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish in this stock, a fall from the previous quarter when 39 hedge funds owned stakes in the company. Meanwhile, the hedge funds’ total holdings in the company increased to $356.67 million from $319.63 million. However, as shares were up by 30% during the first quarter, there was actually a fairly big sell-off of shares by the smart money during the quarter.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 123% and beating the market by more than 66 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

Insider transactions can also shed some light on how much upside potential a stock has. Michael Greenberg, the President of Sketchers USA Inc., unloaded some of his holdings in the company during June. Greenberg sold 126,868 shares during the previous month, but these transactions should not raise any red flags given the recent performance of the company.

With all of this in mind, we’re going to take a look at the new hedge fund action regarding Skechers USA Inc (NYSE:SKX).

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