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This morning I noticed that Deckers Outdoor Cp (DECK) was on the list of top % gainers on the NASDAQ. It has some interesting features that make it suitable for this blog. However, as the day went on, other stocks started outperforming DECK and it didn't make the final list of top gainers. The stock, however, still deserves a review! It closed today at $65.20, up $3.75 or 6.10% on the day. I do own 95 shares of DECK in a managed retirement account that I have assigned management responsibility to my own advisers.
Let's take a look at this company and I shall share with you why I am so enthusiastic about the stock!
What exactly does this company do?
According to the Yahoo "Profile" on Deckers, the company
"...engages in the design, production, and brand management of footwear for men, women, and children in the United States. Its products include slides, sport sandals, thongs, amphibious footwear, trail running shoes, hiking boots, rugged closed-toe footwear, sheepskin boots and slippers, and other casual footwear. The company provides its products under Teva, Simple, and UGG brand names."
How did they do in the latest quarter?
What drove the stock higher today, as is often the case on stocks discussed on this blog, was the announcement of 4th quarter 2006 results yesterday after the close of trading yesterday. For the quarter ended December 31, 2006, net sales increased 36.7% to $124.4 million from $91.0 million. Net income came in at $23.5 million, up almost 100% from $12.1 million reported in the same period in 2005. Diluted earnings per share increased 93.6% to $1.82 from $.94/share last year.
The company blew away analyst expectations of a profit of $1.31/share on revenue of $110.7 million. The company announced 1st quarter 2007 guidance with earnings and revenue expected to increase 15% over the same quarter in 2006.
How about longer-term financial results?
Reviewing the Morningstar.com "5-Yr Restated" financials on DECK, we find that the company has shown recent rapid growth in revenue from $91.5 million in 2001 to $264.8 million in 2005 and $271.0 million in the trailing twelve months (TTM). Earnings, initially erratic, dipped from $.17/share in 2001 to a loss of $(.75)/share in 2002. However, since then they have turned profitable and increased quickly to $.77/share in 2003, $2.48/share in 2005 and $2.42/share in the TTM. Normally, I would be avoiding a stock with a recent dip in earnings. However, in light of the spectacular latest quarterly report, this doesn't appear to be a significant drop-off in earnings growth.
The company has been increasing its shares somewhat from 9 million in 2001 to 13 million in the TTM. This less than a 50% dilution in shares comes alongside essentially a 200% increase in revenue and a more than 1000% increase in earnings. This is an acceptable dilution imho.
Free cash flow is positive and increasing recently with $17 million reported in 2003, $11 million in 2004, then growing to $26 million in 2005 and $37 million in the TTM. The balance sheet looks solid with $45.3 million in cash, enough to easily cover the $26.3 million in current liabilities and the $4.3 million in long-term liabilities combined with literally millions left over! Calculating the 'current ratio', we find a combined $155 million in current assets, which when divided by the $26.3 million in current liabilities yields a strong 5.89.
What about some valuation numbers on this stock?
Looking at Yahoo "Key Statistics" on DECK, we can see that this is a small cap stock with a market capitalization of only $819.04 million. The trailing p/e is a reasonable (imho) 26.91, with a forward p/e (fye 31-Dec-07) estimated at 20.96. With the rapid growth anticipated, the PEG (5 yr expected) comes in at an acceptable 1.43.
Using the Fidelity.com eresearch website, we find that DECK has a Price/Sales (TTM) ratio of 2.53 compared to an industry average of 2.61. The company also has a fairly average Return on Equity (ROE) (TTM) of 21.28%, compared to the industry average of 21.59%.
Finishing up with Yahoo, we find that there are 12.56 million shares outstanding with 10.97 million that float. As of 1/9/07, there were 1.71 million shares out short representing 14.8% of the float. This may also be calculated as 7 trading days of volume (the short ratio). Since this is in excess of my own arbitrary '3 day rule' for short interest, this appears to be a significant short interest level and may well be fueling the price rise today on the back of good news. No dividend is paid and no stock split is reported on Yahoo.
What does the chart look like?
Examining a "Point & Figure" chart on Deckers Outdoor (DECK) from StockCharts.com, we can review the price appreciation from $30 in late 2004 to $49 before a sharp correction down to $17 in October, 2005. Since late 2005, the stock has been moving steadily and sharply higher closing today near its high at $65.20.
Summary: What do I think?
Well I do actually own some shares of DECK, although this holding is not part of my trading portfolio which I manage, so take that into consideration. But let's review some of the things of interest. First of all, the stock moved strongly higher today on a fabulous earnings report which blew away the estimates on both revenue and earnings. They have been growing revenue strongly the past several years along with earnings. Free cash flow has been positive and growing and the balance sheet appears to be rock solid.
Valuation-wise, the p/e isn't bad and the PEG is under 1.5. The Price/Sales and ROE figures are fairly average for DECK's industrial group. There are lots of shares out short which may well be fueling the additional stock increase with the terrific earnings report. Finally, the graph looks strong.
There are a good number of reasons why I like this stock and have included it here on the blog! Now of course, I would buy a stock like this if I had the 'permission' to add a position. Unfortunately, I am only close to a sale of one of my holdings (WOOF) which would result in me 'sitting on my hands' and not going shopping so to speak. In any case, this is a stock that is now in my vocabulary, and I hope yours as well!
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