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 $340.42 per share and the market cap of $9.6 billion, Deckers Outdoor stock appears to be 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 8.79% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Deckers Outdoor has a cash-to-debt ratio of 4.36, which is better than 80% of the companies in the industry of Manufacturing - Apparel & Accessories. The overall financial strength of Deckers Outdoor is 7 out of 10, which indicates that the financial strength of Deckers Outdoor is fair. This is the debt and cash of Deckers Outdoor over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Deckers Outdoor has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $2.4 billion and earnings of $12.86 a share. Its operating margin of 19.76% better than 94% of the companies in the industry of Manufacturing - Apparel & Accessories. Overall, GuruFocus ranks Deckers Outdoor's profitability as strong. This is the revenue and net income of Deckers Outdoor over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Deckers Outdoor is 10.3%, which ranks better than 85% of the companies in the industry of Manufacturing - Apparel & Accessories. The 3-year average EBITDA growth is 101.6%, which ranks better than 97% of the companies in the industry of Manufacturing - Apparel & Accessories.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Deckers Outdoor's ROIC is 43.03 while its WACC came in at 6.11. The historical ROIC vs WACC comparison of Deckers Outdoor is shown below:
To conclude, the stock of Deckers Outdoor (NYSE:DECK, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair 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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