The stock of Deckers Outdoor (NYSE:DECK, 30-year Financials) shows every sign of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $342.05 per share and the market cap of $9.6 billion, Deckers Outdoor stock gives every indication of being significantly overvalued. GF Value for Deckers Outdoor is shown in the chart below.
Because Deckers Outdoor is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 10.3% over the past three years and is estimated to grow 8.75% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Deckers Outdoor has a cash-to-debt ratio of 4.36, which which ranks better than 80% of the companies in the industry of Manufacturing - Apparel & Accessories. The overall financial strength of Deckers Outdoor is 8 out of 10, which indicates that the financial strength of Deckers Outdoor is strong. This is the debt and cash of Deckers Outdoor over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Deckers Outdoor has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $2.4 billion and earnings of $12.86 a share. Its operating margin is 19.76%, which ranks better than 94% of the companies in the industry of Manufacturing - Apparel & Accessories. Overall, the profitability of Deckers Outdoor is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Deckers Outdoor over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Deckers Outdoor's 3-year average revenue growth rate is better than 83% of the companies in the industry of Manufacturing - Apparel & Accessories. Deckers Outdoor's 3-year average EBITDA growth rate is 101.6%, which ranks better than 97% of the companies in the industry of Manufacturing - Apparel & Accessories.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Deckers Outdoor's ROIC was 43.03, while its WACC came in at 6.40. The historical ROIC vs WACC comparison of Deckers Outdoor is shown below:
Overall, The stock of Deckers Outdoor (NYSE:DECK, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 97% of the companies in the industry of Manufacturing - Apparel & Accessories. To learn more about Deckers Outdoor stock, you can check out its 30-year Financials here.
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