Skechers USA (SKX, Financial) has done well to bounce back from its 52-week low of $18.81. With the stock having appreciated almost 40% since touching that level, it can continue the uptrend, which is why investors should continue holding the stock.
Although Skechers has traded sideways in 2017, the company’s quarterly earnings were the catalyst behind its performance as the stock was underperforming by a wide margin before that.
Skechers came out with its quarterly earnings earlier in February, missing the EPS estimate. The company’s sales were unexpectedly strong, though, and it even expects the trend to continue.
For the fourth quarter, Skechers reported EPS of 4 cents, missing the consensus target by a nickel. The company’s first-quarter EPS guidance of 50 cents to 55 cents was also shy of the Street estimates at 66 cents. Despite the weak EPS performance, shares soared 20% due to the positive sales trend.
Skechers topped its fourth-quarter revenue estimates as its sales, up 5.8% on a year-over-year basis, came in at $764 million, beating the analysts’ estimates by over $40 million. Strong sales saw Skechers' annual revenue rise to record levels of $3.56 billion, a jump of over 13% from last year’s levels.
Fundamentally, Skechers is still cheap as the stock is trading at a trailing price-earnings (P/E) of just 16. Given the company’s annual growth rate, the P/E seems to be reasonable. However, that does not mean Skechers can continue its run. The stock has the tendency to move wildly around earnings reports, but it usually fails to sustain a rally for long. Although the stock may be trading at a reasonable valuation, investors who bought at lower levels should look to book profits as, based on the past performance, the chances of Skechers falling right back to the pre-earnings levels are high.
Conclusion
Despite Skechers’ terrific performance over the past few months, investors should stay cautious and look to exit the stock and book profits. Despite the increase in revenue, Skechers' EPS guidance has underwhelmed, which can only mean that the higher sales are not resulting in higher profitability. As a result, the chances of Skechers falling back to pre-earning levels are high. Investors should look to book profits.
Although it is still reasonably valued, investors should wait for a better entry point to buy the stock.
Disclosure: No position.
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