SKX - Skechers: Walking On Thin Ice Despite Strong Performance
2024-07-03 11:41:19 ET
Summary
- Skechers U.S.A., Inc. is overvalued based on DCF and comps analysis, driven by optimistic market sentiments.
- Skechers faces risks of falling short of earnings expectations, intense competition, and substantial capital expenditures, impacting its financial performance.
- Despite strong financials and market presence, Skechers' current valuation suggests caution for potential investors seeking undervalued stocks.
Investment Thesis Overview
I'll make a bold statement: Skechers U.S.A., Inc. (SKX) appears to be clearly overvalued, or at the very best, fairly valued. Therefore, I find it odd that SA's quant system and Wall Street analysts rate SKX as a "STRONG BUY" and that SA analysts rate it as a "BUY". While Skechers has shown strong financial performance, this success seems to be more than accounted for in its current stock price, suggesting minimal potential for further price appreciation from its current level. Despite impressive sales growth and a strong market position, my discounted cash flow ((DCF)) and comparable company analysis (comps) suggest significant overvaluation even under the most optimistic assumptions. Like many other stocks currently priced significantly above their intrinsic values, I believe this stock's price is merely being propelled by optimism towards the market at large, implying a risk of decline to its intrinsic value once market sentiments cool. While many analysts appear optimistic about SKX, I will be the contrarian and present an argument against it. For value investors seeking undervalued stocks like me, I believe a rating of "SELL" would be the most appropriate at the current price level....
Skechers: Walking On Thin Ice Despite Strong Performance