Skechers USA Inc (SKX, Financial) has recently seen a daily gain of 4.12%, with a slight 3-month loss of -0.46%. The company's Earnings Per Share (EPS) (EPS) currently stands at 3.03. But the question that arises is whether the stock is fairly valued? In this article, we will delve into an in-depth analysis of the company's valuation, financial strength, and growth prospects to answer this question. So, let's get started.
A Snapshot of Skechers USA Inc
Skechers USA Inc is a renowned lifestyle footwear company under the Skechers GO brand name. The company offers a wide range of products including various styles of women's shoes, men's shoes, girl's shoes, boy's shoes, performance shoes, and work shoes. Additionally, they offer apparel, bags, eyewear, toys, and more. Their products are available for sale at department and specialty stores, athletic and independent retailers, boutiques, and internet retailers. The company's operating segments include Wholesale, and Direct-to-Consumer, with the majority of the revenue generated from the Wholesale segment.
The company's current stock price is $49.83, with a market cap of $7.70 billion. The GF Value, an estimate of the fair value of the stock, stands at $55, indicating that the stock is fairly valued.
Understanding the GF Value of Skechers USA
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
At its current price of $49.83 per share, Skechers USA has a market cap of $7.70 billion, and the stock gives every indication of being fairly valued. Therefore, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength of Skechers USA
Before investing in a company, it is crucial to check its financial strength. Investing in companies with poor financial strength can lead to a higher risk of permanent loss. A great way to understand the financial strength of a company is to look at the cash-to-debt ratio and interest coverage. Skechers USA has a cash-to-debt ratio of 0.58, which is better than 53.62% of 994 companies in the Manufacturing - Apparel & Accessories industry. The overall financial strength of Skechers USA is 6 out of 10, which indicates that the financial strength of Skechers USA is fair.
Profitability and Growth of Skechers USA
Investing in profitable companies poses less risk, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Skechers USA has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $7.80 billion and Earnings Per Share (EPS) of $3.03. Its operating margin is 8.47%, which ranks better than 70.83% of 1056 companies in the Manufacturing - Apparel & Accessories industry. Overall, GuruFocus ranks the profitability of Skechers USA at 9 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Skechers USA is12%, which ranks better than 76.05% of 1019 companies in the Manufacturing - Apparel & Accessories industry. The 3-year average EBITDA growth rate is 3%, which ranks worse than 57.29% of 864 companies in the Manufacturing - Apparel & Accessories industry.
ROIC vs WACC Analysis
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Skechers USA's return on invested capital is 11.05, and its cost of capital is 9.14.
Conclusion
In conclusion, the stock of Skechers USA (SKX, Financial) gives every indication of being fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks worse than 57.29% of 864 companies in the Manufacturing - Apparel & Accessories industry. To learn more about Skechers USA stock, you can check out its 30-Year Financials here.
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