Deckers Outdoor retreats as strong earnings coincide with valuation concerns

Deckers Outdoor Corporation (DECK) is an American company that specializes on manufacturing apparel, footwear, and accessories for daily and high-performance activities. It operates its business through six brands like UGG, HOKA, Teva, Sanuk, and AHNU. 

The company has a market cap of over $24 billion and generates over $4.2 billion in annual revenues. Its popularity boomed during the pandemic as more Americans embraced the outdoors lifestyle.

Most of its revenues come from the United States, followed by its international segment, which includes operations in countries like Canada, the UK, France, Taiwan, and South Korea.

Deckers Outdoors makes most of its money through its direct-to-consumer (DTC) channel, followed by its wholesale business. 

The company’s business has done well in the past few years, with its sales jumping from over $2.1 billion in 2020 to over $4.28 billion in the last financial year. Its profits have also soared from $276 million to $760 million in the same period.

Deckers Outdoor stock has jumped by 60% in the last twelve months. However, it has dropped by 35% from its highest point this year, meaning that it has moved into a deep bear market as growth concerns remain. It was trading at $158, while its HypeIndex metric has risen to 79%.

Positive hype

• Deckers Outdoor’s positive hype rose after it published stronger-than-expected financial results, helped by its HOKA and UGG brands. 

• Its revenue rose by 20% to $1.31 billion, while its diluted EPS jumped by 39% to $1.59. These numbers were significantly better than what analysts were expecting. 

• The company also boosted its forward guidance, with its annual revenue expected to come in at $4.8 billion. 

• HOKA’s sales rose by 34.5%, while UGG rose by 13%. These increases were offset by a sharp dive in its Sanuk brand, whose sales fell by 47.6%. Its other brands also saw their sales drop.

• The company has generated strong direct-to-consumer growth in the past few quarters. Also, its margins are better than those of its competitors, with the gross profit margin moving to 57%. Its net profit margin of 18.80% is higher than the sector median of 4%.

• Deckers Outdoor has also continued to reduce the number of its outstanding shares, a move that will boost its earnings per share in the future. It acquired shares worth $105 million in the last quarter, bringing its outstanding shares to 152 million, much lower than the 2017 high of almost 200 million.

• The share repurchases have helped to boost the company’s earnings per share, with its EPS jumping from $0.03 in 2017 to $4.90 in the last financial year.

• Analysts are upbeat about DECK, with the average stock estimate being $188.86, higher than the current $158.12. Some of the most notable analysts are from UBS, TD Cowen, and Evercore.

Negative hype

• Its negative hype is mostly attributed to its falling stock price, which has moved into a deep bear market.

• There are concerns about its valuation since the company has a price-to-earnings ratio of 28 and a price-to-book metric of 10.8. 

• Deckers Outdoor’s stock has formed a rising wedge pattern, pointing to a potential bearish breakout. If this happens, it could drop to $130 in the near term.

• Its business is seeing strong competition from the likes of VF Corp, Columbia Sportswear, and Wolverine Worldwide.

Deckers Outdoor stock analysis

The daily chart shows that the DECK shares have formed a rising wedge pattern, pointing to a potential pullback. It is also about to move below the 50-day moving average. 

Oscillators like the MACD and the Relative Strength Index (RSI) have all pointed downwards. If this happens, the next point to watch will be at $120. On the positive side, a break above the upper side of the wedge will point to more gains, with the next point to watch being at $184, the highest point in May this year. 

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