An Epic Stock For 2024 And Beyond
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What the Deck is going on?!? I’ll tell you what. I’m giving you an actual stock analysis at a general level - for FREE.
And I won’t do any over-the-top, complex math. Nor will I need more than a few minutes of your time.
The Business Model
Every stock has an underlying business. And in order to understand the movement of the stock, you need to know the business. Oftentimes the stock's movement is not aligned with the true fundamentals of the business. This leads to overvaluation in some instances and undervaluation in other instances, creating potential buying opportunities. That’s why Warren Buffett reads for +5 hours per day. Information is power.
So, what does $DECK do? Deckers Outdoor Corporation specializes in footwear and apparel, notably known for popular brands like UGG, HOKA ONE ONE, and Teva. They sell their products through various channels, including company-owned stores, online platforms, and wholesale distributors.
Their cozy UGG boots, sporty HOKA ONE ONE shoes, and adventure-ready Teva sandals are popular worldwide. Boring, right? Well, $DECK is up 507% in the last 5 years. This means they beat Apple, Microsoft, Google, Amazon, and Meta.
Investing should be boring.
“If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring.” – G. Soros
But you do need a competitive advantage. Refer to my recent article Identifying Competitive Advantage for more detail on weeding out poor-performing companies in favor of high-performing companies with strong advantages in their respective competitive spaces.
Their Big Advantage
Their big advantage? I’ll keep it short: brand power.
Deckers Outdoor Corporation rocks the competition with its lineup of brands like UGG, HOKA ONE ONE, and Teva. They've got something for everyone, whether you're into cozy boots, high-performance runners, or adventure sandals.
If you haven't already, feel free to try out some of their products which tend to be very popular. Go out on the street and ask any girl what UGGs are. Maybe you already own or have owned some footwear made by Deckers.
Now that we have the basics lined up, I have to throw in something else.
Every successful business has two things: revenue growth and a high ROIC. Does $DECK have that?
Let me just say one thing. For every dollar they utilized, they've been making around $0.44 in profit on average over the past 5 years. That’s what a 5-year average ROIC of 43.6% means. Deckers has experienced significant growth (YoY revenue growth of 14.4%, consistent with the average over the last 5 years), recently driven by its Hoka brand, and is expected to continue its winning streak.
The profitability of DECK also paints a solid picture both currently and over the last 5 years (analyze trends), with high gross margin greater than 50% and a net income margin maintaining at a very healthy 15% level.
According to Tykr, Deckers has an exceptional rating of 84/100, indicating a strong underlying financial engine and affording confidence as an investment prospect. It also indicates very high ratings as applies to key underlying metrics, along with a wealth of other relevant information to unpack.
Honing in on Return on Equity (ROE) as well, using insights from Tykr and key data from both Tykr and Seeking Alpha, we observe strong returns on equity capital of 37% currently and near 30% on average the past 5 years, well above the minimum threshold of 10% for the minimum threshold of an excellent business. Similarly, management is effectively leveraging company assets with a 21.5% Return on Assets (ROA). This, too, exceeds our minimum threshold for ROA of 5%-10% as the mark of an excellent business.
For further emphasis on DECK's brand power, this article here on Seeking Alpha also highlights how Hoka's running shoes are set apart from Nike with designs to give maximum comfort for runners.
But, of course, before we get all excited you need to know about one big danger. Consumerism is changing swiftly. Is the brand power sustainable for the long-term? You decide...
So, this brief article probably isn’t enough to justify buying the company. But the synopsis above is a great starting point that points you in the right direction. I am not advising you to do anything. Raising InvestorIQ is not responsible for any investment decisions you make, so you'll still need to do your own research and make an assessment yourself before making any investment decisions.
That being said, I think it’s safe to say that $DECK deserves further analysis, and ultimately you're in a better position to conduct that analysis and eventually make a decision on how to proceed.
Good luck!! And before you leave, in case you want more…
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As a Seeking Alpha affiliate, Raising InvestorIQ earns from qualifying purchases. As a Tykr affiliate, Raising InvestorIQ earns from qualifying purchases.
Information provided on this site is based on my own personal experience, research, and analysis, and it is not to be construed as professional advice. Please conduct your own research before making any investment decisions. I am not a professional financial advisor, stockbroker, or planner, nor am I a CPA or a CFP. The contents of this site and the resources provided are for informational and entertainment purposes only and do not constitute financial, accounting, or legal advice. The author is not liable for any losses or damages related to actions or failure to act related to the content on this website.