*Deckers Outdoor Corp [DECK] - is the selloff overdone?*

Discussion in 'Stock picks and trading strategies' started by Technical Alchemist, Oct 13, 2012.

  1. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    Was looking at Deckers the other day and was amazed at how incredibly cheap this once high-flier has become at 8.19Xs TTM earnings and 7.47Xs forward EPS. In the last 18 months the share price has fallen from nearly $119/share to close Friday at $36.44 or a loss of over 69% of its market value.

    For those of you not familiar with DECK they're best known as the manufacturer of UGG Boots which accounts for 87% of sales. The other 13% is comprised of sales from five lesser-known brands - Teva, Sanuk, TSUBO, Ahnu, and MOZO that span the outdoor active and sportwear to cosmopolitan and work target markets. It seems obvious in hindsight that the unusually warm winter we experienced in Q4 '11 and Q1 '12 likely lead to lower sales of the heavily insulated UGG brand's offerings. And while the other brands have less seasonality their relatively minor impact to the bottom line wasn't enough to maintain earnings as Q2 '11 and Q1 and Q2 '12 reported lower EPS YoY. Full year 2011 EPS was 25.81% higher sequentially ($5.07 vs. $4.03) while expected 2012 full year EPS is estimated to show a decline of <10.26%> ($4.55 vs. $5.07).

    No question DECK has exhibited slower growth which is the coup de grace for high-multiple growth stocks but even considering the exposure to the highly fickle fashion industry it looks to me like DECK is being valued like they are going out of business. Let's put this into perspective:

    • DECK's ROE over the last 1, 3, 5 and 9 years is 26.74%, 27.15%, 25.84%, and 22.47% respectively (consider that the last 4 years have been in a recession).
    • Starting in 2004 the company has carried zero long-term debt on its balance sheet.
    • In 2010 and 2011 it has carried a tangible book value of over $16 for a current P/B multiple of just over 2.
    • With more seasonal temperatures Q4 EPS are projected to increase 23.58% ($3.93 vs. $3.18 )YoY despite full-year EPS being ~10% lower.
    • And 5-year growth rates are still projected to be roughly 17% for a PEG ratio of 0.48 - anything under 1 is extremely low.

    To be clear I'm not forecasting a return to triple-digit share price but it looks as though this sell-off is a tad overdone. Let's consider an extremely conservative hypothetical; let's assume DECK grows no faster than the general footwear industry at 5.3% this year. Furthermore let us assume that with the excellent balance sheet and superior management and their track record of manufacturing ROE that 2Xs growth is a fair multiple. If DECK were to earn $4.55 in EPS as forecast for full-year 2012 at a 10.6 multiple fair value for DECK would be $48.23 or 32% higher than where it was as of Friday's close. A more aggressive multiple might be to apply the industry average of 19.7Xs EPS giving DECK a fair value of $89.64/share nearly a three bagger from current levels.

    Not being a fool to ignore what the market is saying I would of course wait for signs of life from the technicals before legging in and it seems we may have the potential for a bottom unfolding on the charts. Closing above $38.18 would be a start toward at least a series of higher highs and higher lows. Better yet would be if it could reclaim the $40 level. Keep an eye on the 60-65 level on the RSI(14) and if the RSI(14) finds support at 40-45 as it tries to eclipse 60-65. This would provide an early sign the bulls are back in the driver seat.


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    Last edited by a moderator: Mar 22, 2014
  2. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    Perhaps DECK is waking up? Or, perhaps it's just a bear market rally?

    Watch the RSI(14) for clues. If it can break through 60-65 that would be a bullish signal since this level is typically the ceiling in bear market rallies. Even if the RSI is turned back at this level watch how it reacts at 40-45. If it finds support there, which is often support in bull markets, this could signal an advance is unfolding.

    Last edited by a moderator: Mar 22, 2014
  3. probe1957

    probe1957 Member

    $35 seems to be a pretty firm support level for DECK. Perhaps selling a put there would be a good move. Earnings coming up which seems to be a bit of a crap shoot with them. I think I will just watch it.
  4. txjeff

    txjeff Member

    Seems to me that it is mostly missing some kind of catalyst to let it get higher. A purpose. The Uggs alone and warmer climate hasn't bode well for the mfg. We'll see on the 25th earnings report.
  5. txjeff

    txjeff Member

  6. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

  7. txjeff

    txjeff Member

    Hiya; I bought in on this last week when it hit bottom post earnings 5 or so days later. Made a little profit on a trade, pre-election. Now it's floating in limbo again. Out since pre-election.
  8. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    Gutsy trade. I've never been a fan of bottom picking. Would much rather trade breakouts. But if it works for ya then stick with it.

    I read a transcript of the call and I cannot recommend DECK at this time. If they give pre-earnings guidance that shows sales are trending higher before the holidays then maybe there is some value there but at the moment this looks like a broken stock and a broken company.

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