Company Name: Skechers USA Inc.
Entry Price: $31.40
Target Price: $38.00
Projected Yield: 21%
Time Line: 3 to 6 months
This company manufactures casual and athletic shoes under Skechers and Skechers Performance brands. Skechers is currently the second largest athletic shoe brand in the US; it is also engaged in production and sales of clothing and accessories. The products are distributed through a network of 3,500 stores in 170 countries, as well as on the web.
What's the Idea?
Capitalize on a stock that can rise with sales recovery and the development of web network.
Buy Skechers Shares >>
Why Trade Skechers?
Reason 1: Sales Recovery after the Fall due to the Pandemic
Skechers, like many other retailers, experienced the impact of the pandemic, which was strong enough to have most its stored closed. In the first six months of 2020, the company's earnings decreased by 22.20%, while the operating loss amounted to $ 16.20M against $276.90M in 2019.
Despite weak results in the first six months, the company management is optimistic about the sales recovery in the second six months, as well as the further development of Skechers. The sales will be recovering at an accelerated pace thanks to store openings (90% were open in late July), due to the gradual easing of the lockdown measures and an increase in customer conversion rates. Most similar retailers experienced a similar trend, including the main competition, Nike and Adidas. In addition, Skechers sales in China increased by 11.50% in the second six months of 2020. The market is recovering, and more markets may follow.
Reason 2: Active Increase in Online Sales
The overall earnings decline due to the store closures was partially offset by increased online sales, which were boosted by 428% in Q2. Recently, Skechers has been actively investing in its online platforms. Thanks to the digital infrastructure, Skechers will not only increase the online sales channel, but will also be able to collect information about customers. Thus, the company will be able to more effectively test its strategies in order to identify consumer preferences and assess the promotion and targeting efficiency.
A focus on digital channels will definitely support sales amidst the pandemic and increase the efficiency of marketing activities, which may become the main driver of the company's growth in the midterm.
Reason 3: Stable Financial Condition and Low Multiplier Score
Despite a significant decline in sales and an operating loss in the first six months of 2020, Skechers has a strong financial condition and low leverage. The company has a debt of $763M, while its cash amounts to $1.458B. During the pandemic, the company maintained a positive operating cash flow of $176M in the first six months of 2020. The free cash flow, although falling to $26.60M, remained positive.
In the current economic conditions, Skechers is comfortable enough to focus on reorganizing its business. Currently, Skechers stock is traded cheaper than its main competition (Nike, Adidas, Under Armor, and Puma). Skechers EV/S, EV/EBITDA, and PE multipliers are 1.42x, 10.34x, and 34.3x, respectively. Should the sales recover in the second six months, the stock will have a significant upside potential.
How to Use the Idea
- Buy Skechers shares at $31.40.
- Allocate no more than 2% of your portfolio amount. To build a balanced portfolio, you can use our analysts' recommendations for an USD or a EUR portfolio.
- Sell the stock when the price is at $38.00 per share.
How to Buy Skechers Shares?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: In the Web Terminal section, type SKX.US (Skechers ticker in the NYSE) in the search box, and select Skechers USA Inc. in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search box that will show up, type SKX.US (Skechers ticker in the NYSE) and select Skechers USA Inc. in the results. You will then see Skechers stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
Buy Skechers stock, don't miss its recovery after the pandemic!
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