NIKE, Inc. (NKE), Wolverine World Wide, Inc. (WWW): This Footwear Company Remains a Bargain Despite the Industry’s Recent Surge

Various factors have converged to account for Deckers’ recent stock price rise and create optimism regarding the company’s future: a decline from historic highs in sheepskin prices has increased the profitability of UGG products; a far colder winter than last year drove strong demand for warm UGG boots this past year, and is expected to fuel demand into next winter; and immense popularity of UGG products in 2012 online Christmas shopping boosted analysts’ evaluations of the long-term strength of the UGG brand.

Notwithstanding the recent rise in its stock price and the various positive long-term trends discussed above, with a price to earnings ratio of 16, Deckers still trades at a significant discount to its competitors. This discount reflects continuing uncertainty regarding the marketability of UGG products, which have sold erratically in the recent past. For example, in 2012, Deckers’ stock fell precipitously as UGG sales declined sharply in an unusually warm winter.

The best bargain in footwear is Deckers

Despite strong reason for belief in near-future growth in footwear sales due to burgeoning American consumer confidence, the recent success of footwear companies in the stock market, which has brought P/E ratios for the industry above average highs for the 2000s, suggests that on an industry-wide basis there is no great value in the footwear industry.

Of the three companies analyzed here, an investor still interested in pursuing opportunities in the footwear industry would find the greatest value (and the greatest risk) in Deckers.

Colin Tweel has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike.

The article This Footwear Company Remains a Bargain Despite the Industry’s Recent Surge originally appeared on Fool.com and is written by Colin Tweel.

Colin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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