Deckers Outdoor (NYSE:DECK) has the makings of a long-term winner. The athletic apparel and sneaker company continues to grow at a good rate while expanding its profit margins. Shares trade at a 33 P/E ratio, which is reasonable when considering the company’s financial growth and opportunities.
Investors have agreed in the long run. Shares have more than doubled over the past year and are up by 520% over the past five years. The recent inclusion into the S&P 500 (SPX) put this stock on my radar, and it still looks like a good long-term opportunity. Therefore, I am bullish on DECK stock.
The Brands Within the Deckers Outdoor Umbrella
Deckers Outdoor specializes in sneaker and athletic apparel brands. You may not have heard of Deckers Outdoors, but you have likely heard of some of its brands. UGG, HOKA, Teva, and Sanuk are its core brands. HOKA is a viable competitor to Nike (NYSE:NKE). It has been growing at a faster rate and is still in its early innings.
Unlike many brands in their early innings with great potential, Deckers Outdoor doesn’t have an excessive valuation, as mentioned earlier. Deckers Outdoor presents a good margin of safety, especially for investors who can hold onto the stock for several years. I believe DECK is a buy-and-hold opportunity rather than a trading opportunity.
The company has the flexibility to acquire additional brands and can explore opportunities with great synergy. Moreover, the core group of brands is generating solid revenue growth and high profits.
Financial Growth Stays Strong
Deckers Outdoor has maintained solid growth rates for several years and continued that trend in the third quarter of Fiscal 2024. During that quarter, revenue hit a record $1.56 billion and was up by 16% year-over-year. Diluted EPS increased by 44% year-over-year to reach a record $15.11. The athletic company also raised its guidance for Fiscal 2024.
Financial growth wasn’t lopsided toward Domestic or International sales. Both segments grew at similar rates. Domestic net sales increased by 15.6% year-over-year, while International net sales were up by 16.7% year-over-year. Domestic sales made up more than two-thirds of total revenue. Both segments, especially the International segment, have vast runways.
That growth should continue, thanks to the company’s wide range of customers. Deckers Outdoor has customers ranging from elite athletes to people who won’t run in a single race. Leadership indicated that the company can actually grow faster but is taking a prudent approach to avoid over expansion and high losses.
In today’s landscape, where the focus often shifts to immediate measures like job cuts and stock buybacks to enhance shareholder value, having a management team committed to long-term results is uncommon.
The company reported no outstanding borrowings on its balance sheet and has $1.651 billion in cash and cash equivalents. Total current assets of $2.6 billion comfortably exceed the total current liabilities of $927 million. The firm engages in stock buybacks and has cash available to purchase more shares. Those buybacks will increase EPS and reward long-term investors.
Still, while buybacks are enticing for short-term value, Deckers Outdoor is also reinvesting its money back into the business. This allocation of capital will strengthen the underlying business instead of making stock gains reliant on stock repurchase programs.
The Recent S&P 500 Inclusion Will Bring More Attention to the Stock
The recent S&P 500 inclusion will attract more investors to Deckers Outdoor stock. Fund managers scramble to buy shares and must add to their positions as DECK stock appreciates. Its recent addition to the index prompted me to look deeper into the stock and turned me into a bullish investor. Other investors may discover the stock in the same way, and it’s likely to get more press due to its inclusion.
Deckers Outdoor also had the luxury of being added to the S&P 500 at the same time as Supermicro (NASDAQ:SMCI), the stock that’s received the most attention this entire year.
Is DECK Stock a Buy, According to Analysts?
Deckers Outdoor is rated as a Strong Buy among 16 analysts. Based on DECK stock’s average price target of $932.06, it only has 1.9% upside potential at current levels. However, the highest price target of $1,150 per share suggests a 25.7% rally from the current price. Recent Buy ratings suggest further upside than a 1.9% gain.
The Bottom Line on Deckers Outdoor Stock
Deckers Outdoor offers high-growth business segments and enticing financials. Profit margin expansion, double-digit revenue growth rates, and a reasonable valuation support long-term gains. The stock has outperformed the stock market for several years and looks poised to continue that stretch.
I believe that any pullbacks present good opportunities and sweeten the deal. With the stock’s recent addition to the S&P 500, more investors will pay attention. The stock can rise considerably in the long run and looks like a Buy at its current price.
