Valuation Indicates Skechers Stock Has A Huge Upside Potential

  • Skechers has seen huge growth across its top and bottom lines and is poised to continue to grow in domestic and foreign markets.
  • With growing revenue, minimal debt, and improving margins, Skechers stock has a lot to offer to value and growth investors.
  • At current levels, Skechers is a great value play with at least 20% upside in the next 12 months.

2015 was a sensational year for Skechers (NYSE:SKX) as it saw sales rise by over 34% and net income increase over 67%. Skechers stock price appreciated commensurately in relation to its performance by increasing 64% during 2015. Although Skechers stock is a distance away from its 52-week high of $54.53, I believe it is poised to climb back up to that value.

SKX stock chart

Source: Skechers Stock Price Chart by

Strong Fundamentals

Skechers has shown strong performance on topline growth with a 3-year revenue growth rate of 26.3%. Its bottom line has grown even more due to its revenue growth and consistent improvements in operating margin, which increased to 11.1% for 2015, compared to 1.4% back in 2012. With net income of $232 million, Sketchers is trading at a PE of 21, trailing its industry average of 25.7. The company’s ability to grow across top and bottom lines shows its high operating efficiency over the past 3 years.

The athleisure trend and the rise in health and fitness is great not just for the big players like Nike (NYSE:NKE) and Under Armour (NYSE:UA), but also for the smaller guys like Skechers. The market is growing and companies are capitalizing on it both domestically and internationally. Skechers isn't looking to slow down its growth anytime soon as it is planning on opening 340 new stores by the end of 2016. It knows that bigger growth prospects exist in international markets, which is why it is trying to make its international sales account for half of its total revenue.

Skecher's balance sheet is very strong. It has little debt and great liquidity. Currently, it has a strong cash ratio of 0.88 and current ratio of 2.7. With only $69 million in long-term debt, Skechers has a book value of $1.3 billion, making it trade at only 3.7 times its book value, which is much lower than the footwear and accessories industry average of 5.9.


The following is my DCF for Sketchers. The model uses a 10% discount rate and 4% terminal growth rate. It assumes a revenue growth rate of 20%, 15%, 10%, 10% and 8% over the next 5 years.


As you can see, I have Skechers revenue declining pretty significantly from its 34% growth in 2015. However, even at this declining growth rate, I have its value of equity at $6.06 billion; approximately 20% above its current market cap. I consider this to be a conservative valuation model for valuing Skechers stock as growth prospects can be, and have been significantly higher in the 3 trailing years. The industry is on fire and Skechers has gained a lot of momentum on the growth front, so I believe it is positioned well for the upcoming years. And with a debt/equity ratio of 0.1, it won’t have any problems funding any costs to support its future growth.


While most eyes are on Under Armour’s huge growth or Nike’s dominance and new self-tying shoe, Skechers might be the small footwear and athletic apparel company that is being overlooked by investors. Nike is trading at a PE of 30 and Under Armour is trading as high as 77 times earnings, while Skechers is at only 21. With a strong balance sheet, impressive growth rate, and improving bottom line margins, I believe Skechers stock is a great value play in the years ahead.

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