According to a 13G filed with the SEC, SAC Capital Advisors, which is managed by billionaire Steve Cohen, owns a little over 2 million shares of Skechers USA Inc (NYSE:SKX). This gives the fund 5.1% of the total shares outstanding of the $1.1 billion market cap footwear company. We track quarterly 13F filings from hedge funds such as SAC as part of our work researching investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year) and so we can see that at the beginning of January Cohen and his team only had about 550,000 shares in their portfolio (see more of Cohen’s stock picks).
Skechers USA Inc (NYSE:SKX)’ revenue was down 3% last year from its levels in 2011, and is now 22% below its peak from 2010. Cost of goods sold declined, and growth in operating expenses was held down; as a result, the company reported a small profit for 2012 as opposed to large net losses in the previous year, though once again the financials pale in comparison to the 2010 numbers. However, Skechers did experience something of a recovery in the fourth quarter of 2012: revenue increased significantly compared to Q4 2011, and adjusted earnings per share of 8 cents crushed analyst expectations of a loss of 11 cents per share.
Wall Street analysts expect continued improvements in 2013, with consensus forecasts calling for $1.03 in EPS for the year- a current-year P/E multiple of 21. Sell-side projections then imply a forward earnings multiple of 15. From that point Skechers USA Inc (NYSE:SKX) would not need to grow its earnings by much in order to prove a good value, but of course the company would have to meet those targets.
Our database of 13F filings shows that hedge funds weren’t particularly excited about Skechers USA Inc (NYSE:SKX) in the fourth quarter of 2012. The only fund with a position worth over $20 million at the end of December was David Keidan’s Buckingham Capital Management (find Buckingham’s favorite stocks). We also keep track of insider trading filings and can see that a company officer bought 10,000 shares in early March at an average price of $21.19 per share; studies show that stocks bought by insiders narrowly outperform the market on average (read our analysis of studies on insider trading).
We would compare Skechers USA Inc (NYSE:SKX) to NIKE, Inc. (NYSE:NKE), Deckers Outdoor Corp (NASDAQ:DECK), Wolverine World Wide (NYSE:WWW), and Crocs, Inc. (NASDAQ:CROX). Crocs is the cheapest stock in this peer group, with a trailing P/E of 10, and it too improved its revenue in its last quarterly reported compared to the fourth quarter of 2011. It looks worth considering as a value stock. Deckers does feature both trailing and forward earnings multiples in the teens, but the owner of Ugg and Teva has been experiencing considerably poorer results and a broad bearish community has 41% of the float held short per the most recent data. NIKE, Inc. (NYSE:NKE) and Wolverine are more expensive, trading at 23 and 27 times their trailing earnings respectively. NIKE, Inc. (NYSE:NKE)’s net income was up strongly in its most recent quarter compared to the same period in the previous fiscal year, though revenue growth was more modest. As a result we don’t think that NIKE, Inc. (NYSE:NKE) is a good value right now. Wolverine- which has been acquisitive, and has thus achieved considerable growth- is expected to improve its bottom line considerably over the next couple years with a forward P/E of only 14. It might be worth watching for a quarter or two to see how financials develop.
We don’t recommend imitating this purchase by SAC- Skechers USA Inc (NYSE:SKX) is still well short, even looking at the most recent quarter alone, of how well it needs to do in order to justify its valuation. It and Wolverine are actually in a similar position, and could both be worth reviewing after we’ve seen how well they do in early 2013. Crocs seems like a better value prospect at this time,
Disclosure: I own no shares of any stocks mentioned in this article.
