About Skechers
Skechers used to be the cat’s pajamas.
We fondly remember them as the shoe brand that peaked in popularity in the mid-to-late 2000s and then we pretty much forgot about their existence.
No offense, Skechers.
We often opt for other shoe brands, as it’s also not all that common for the vast majority of adults to wear Skechers, at least from what we’ve seen in our neck of the woods.
Nevertheless, the market doesn’t only care about what we like or how we feel about certain products or brands but takes into account the global consumer’s opinion as a whole.
Although we don’t think Skechers’ shoes are “all that” and that the competition in the market is stiff, kicking up against Nike, Adidas, Deckers Brands and more, we think many investors often miss opportunities with seemingly uninteresting companies.
If the pundits aren’t talking about a stock, it usually doesn’t receive much (if any) interest from the general investment community, possibly presenting an opportunity to invest in a quality company at a lower multiple.
Skechers just might fit the mold and might be an investment opportunity worth seeking out.
Skechers’ stock financials
Trading at a share price of just north of $36 with a market capitalization of $5.7 billion, a price-to-earnings (P/E) ratio of 7.98, Skechers seems to be trading at the same note of the price of its shoes; at a bargain.
As a point of reference, a P/E ratio of 20 is generally said to indicate that a stock is trading at fair value or what it’s worth and anything lower implies that it’s undervalued. Following this logic, Skechers’ stock is woefully undervalued at the moment.
We must investigate further.
Well, ok, we don’t “need” to but if you’ve made it this far in the article, we couldn’t bear to let you down.
According to the company’s balance sheet, Skechers’ executive team manages around $6.4 billion in total assets along with about $3.2 billion in total liabilities.
For a company operating in the retail and shoewear space, this is a very solid balance sheet, as its total assets stand at double its total liabilities, signaling that the company is currently financially stable and solvent.
Low and behold the company has also experienced some recent revenue growth, specifically as its total revenue stood at around $4.1 billion in 2017 and was reported most recently as being almost $6.3 billion (2021).
We think it would be necessary and responsible to note that between 2017 and 2020, the company’s total revenue was fairly flat and the spike in revenue to $6.3 billion was mainly between 2020 and 2021, likely caused by an increase in their prices due to inflation.
We point this out so as to say that we don’t think it would be fair for investors to expect consistent upward revenue growth from a company as mature as Skechers. However, there’s nothing wrong with consistency as it relates to revenue.
Thankfully, the company has also maintained positive net income according to its cash flow statement over the last five years, which is somewhat shocking given the supply chain-related challenges it has probably faced and continues to face, as most (if not all) of its shoes are manufactured in China and Vietnam.
While we’re not the biggest fans of Skechers’ shoes, it seems like a lot of people are.
Skechers’ stock fundamentals
As common in the industry in which it operates, Skechers’ margins are competitive and nearly in-line with the competition within the industry. Specifically, the company’s trailing twelve month (TTM) net profit margin is 11.34% to the industry’s average of 12.34%, according to TD Ameritrade’s platform.
This is better than we had initially expected.
While it would obviously be great if the company’s net profit margin was greater than the industry average, we’re thoroughly pleased with the fact that Skechers is staying competitive from a profit generation perspective.
Unsurprisingly, the company’s TTM returns on equity, assets and investment are all slightly lower than the industry average. As mentioned in previous stock analysis articles, retail is hard and the margins for shoes tend to be low, especially when going up against the likes of Nike.
It’s not exactly a walk in the park for Skechers.
Although if you are walking in the park, be sure to throw on your Skechers, of course, after we pick up some shares.
It’s just a joke, SEC, relax.
Overall, we hope that Skechers’ returns increase and drift closer to the industry average (if not better), but given the relative maturity and competitive landscape this company goes up against, we’re not banking on it.
Should you buy Skechers’ stock?
All things considered, it appears as though the market is right and we’re just wrong.
While that’s a gross oversimplification, the fact of the matter is that it’s hard to find relatively inexpensive, seemingly cheap, quality stocks in the current market environment.
Although we definitely don’t expect this company to generate anywhere in the neighborhood of high double-digit returns in the near future, shares of the stock appear undervalued and Skechers has strong brand recognition and a solid global presence.
Given all of this information, we give Skechers a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.