SKX Stock Study (10-14-24)

Posted by Mark on November 4, 2024 at 06:23 | Last modified: October 14, 2024 14:07

I recently did a stock study on Sketchers USA, Inc. (SKX) with a closing price of $67.56. This replaces the previous study that accidentally used default Low Stock Price Forecast (LSPF) rather than my manual override.

M* writes:

     > Skechers USA Inc is a lifestyle footwear company under the
     > Skechers GO brand name. Products offered include various
     > styles of women’s shoes, men’s shoes, girl’s shoes, boy’s
     > shoes, performance shoes, and work shoes. Allied products
     > offered are apparel, bags, eyewear, toys, and more. Its
     > products are available for sale at department and specialty
     > stores, athletic and independent retailers, boutiques, and
     > internet retailers. The company’s operating segments
     > includes Wholesale and Direct-to-Consumer. It generates
     > maximum revenue from the Wholesale segment.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 13.0% and 12.4%, respectively. Lines are mostly up, straight, and parallel except for YOY sales+EPS decline in ’20 [pandemic] and additional YOY EPS dips in ’17 and ’22. 5-year and 10-year EPS R*2 of 0.21 and 0.34 [0.60 and 0.81 excluding ’20 and ’21], respectively, are poor and consistent with Value Line’s lackluster Earnings Predictability score of 40.

Over the past decade, PTPM leads peer averages but trails the industry in ranging from 7.0% in ’22 to 10.6% in ’15 with a last-5-year mean (excluding 3.4% in ’20) of 9.0%. ROE also leads peer averages while trailing the industry in ranging from 9.5% in ’17 (4.1% in ’20 excluded) to 26.0% in ’21 with a last-5-year mean of 16.5%. Debt-to-Capital is less than peer and industry averages with a last-5-year mean of 35.0%.

Value Line gives a B++ grade for Financial Strength and Interest Coverage of 33.1. M* reports Quick Ratio of 1.2 and assigns a “Narrow” Economic Moat [quantitative] to the company.

With regard to sales growth:

• YF projects YOY 11.7% and 10.4% for ’24 and ’25, respectively (based on 12 analysts).
• Zacks projects YOY 11.8% and 9.4% for ’24 and ’25, respectively (4 analysts).
• Value Line projects 10.2% annualized growth from ’23-’28.
• CFRA projects 10.0% YOY and 4.9% per year (estimate for ’25 is carbon copy of ’24) for ’24 and ’23-’25.
• M* reports 2-year annualized ACE of 11.2%.

I am forecasting below the range (assuming the aforementioned is in error) at 9.0% per year.

With regard to EPS growth:

• MarketWatch projects 20.0% and 20.6% per year for ’23-’25 and ’23-’26, respectively (based on 16 analysts).
• Nasdaq.com projects 15.3% YOY and 14.5% per year for ’25 and ’24-’26, respectively (6/7/3 analysts for ’24/’25/’26).
• Seeking Alpha projects 4-year annualized growth of 21.2%.
• Argus projects 5-year annualized growth of 12.0%.
• YF projects YOY 19.8% and 20.1% for ’24 and ’25 (14) along with 5-year annualized growth of 16.8%.
• Zacks projects YOY 18.6% and 16.1% growth for ’24 and ’25 (7) along with 5-year annualized growth of 17.0%.
• Value Line projects 15.3% annualized growth from ’23-’28.
• CFRA projects 14.6% YOY and 7.1%/year for ’24 and ’23-’25 (’24 estimate equals ’25) and a 3-year CAGR of 5.0%.

My 11.0% forecast is below the long-term-estimate range (mean of five: 16.5%). Initial value is ’23 EPS of $3.49/share rather than 2024 Q2 EPS of $3.73 (annualized).

My Forecast High P/E is 18.0. Over the past decade, high P/E decreases from 23.8 (’14) to 18.3 (’23) with a last-5-year mean (excluding 69.5 in ’20) of 17.7 and a last-5-year-mean average P/E (also excluding ’20 low P/E of 26.7) of 14.1. I am near bottom of the range (only ’21—probably downside outlier that could also be excluded—is less at 11.8).

My Forecast Low P/E is 9.0. Over the past decade (excluding 26.7 in ’20), low P/E ranges from 7.2 in ’21 to 19.6 in ’17 with a last-5-year mean of 10.5. I am forecasting near bottom of the range [only ’21 is less (7.2)].

My LSPF is $45.60. Default ($31.40) based on initial value from above seems unreasonably low at 51.9% less than previous close and 31.1% less than the 52-week low. Instead, I am using the 52-week low itself: 32.5% less than the previous close.

These inputs land SKX in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 9.4%.

PAR (using Forecast Average—not High—P/E) of 3.3% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 90 studies (my study and 28 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.7%, 11.5%, 19.7, and 12.8, respectively. I am lower across the board. Value Line’s projected average annual P/E of 17.0 is higher than MS (16.3) and higher than mine (13.5).

MS high / low EPS are $6.25 / $3.63 versus my $5.88 / $3.49 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $7.10 is greater than both.

MS LSPF of $44.10 implies a Forecast Low P/E of 12.1: less than the above-stated 12.8. MS LSPF is 5.1% less than the default $3.63/share * 12.8 = $46.46 resulting in more conservative zoning. MS LSPF is also 3.3% less than mine.

With regard to valuation, PEG is 0.96 and 1.5 per Zacks and my projected P/E, respectively: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is elevated at 1.28 due in part to not excluding the [potential] downside P/E outlier[s] mentioned above.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. Also supporting this conclusion is MS TAR (13.3%) being 3.9% per year greater than mine.

As flagged in an audit note, my Forecast High P/E exceeds the 5-year average P/E. Excluding ’20 (unusually high due to pandemic) but including ’21 (unusually low as stock price rebounds) is the cause, which also pushes Relative Value higher.

For a company with pretty good fundamentals, the biggest detriment is ~36% stock appreciation over the last year. The stock carries a Value Line Timeliness rank of 1, which is something I don’t often see.

Per U/D, SKX is a BUY < $60. BI TAR criterion is met ~ $53/share based on forecast high price ~ $106 (no dividend).

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