Skechers USA Inc. (NYSE:SKX) has delivered another quarter of strong financial and operational results. The sports shoe maker reported net revenue of $800.5 million, up 36% year-over-year. The company’s top-line has been mainly driven by unusually strong demand after the U.S. West Coast port strike and by the increased demand of back-to-school items both domestically and internationally. In addition to that, Sketchers posted net earnings of $79.8 million or $1.55 per share in the second quarter of 2015, compared to $34.8 million or $0.68 per share reported a year earlier. The company believes that it will be able to sustain the current growth momentum through the rest of 2015 and into 2016, upheld by the so-called athleisure trend in the U.S. retail sector. The shares of Sketchers have grown by over 168% year-to-date and are up by 16.69% in today’s intraday trading session.
Is Skechers USA Inc (NYSE:SKX) a buy here? Investors who are in the know are in a bearish mood. The number of bullish hedge fund bets shrunk by three in recent months. Heading into the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish in this stock, a fall from the previous quarter when 39 hedge funds owned stakes in the company. Meanwhile, the hedge funds’ total holdings in the company increased to $356.67 million from $319.63 million. However, as shares were up by 30% during the first quarter, there was actually a fairly big sell-off of shares by the smart money during the quarter.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 123% and beating the market by more than 66 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
Insider transactions can also shed some light on how much upside potential a stock has. Michael Greenberg, the President of Sketchers USA Inc., unloaded some of his holdings in the company during June. Greenberg sold 126,868 shares during the previous month, but these transactions should not raise any red flags given the recent performance of the company.
With all of this in mind, we’re going to take a look at the new hedge fund action regarding Skechers USA Inc (NYSE:SKX).
How are hedge funds trading Skechers USA Inc (NYSE:SKX)?
When looking at the hedgies followed by Insider Monkey, Dmitry Balyasny‘s Balyasny Asset Management had the biggest position in Skechers USA Inc (NYSE:SKX), of 806,702 shares, worth close to $58 million, accounting for 0.5% of its total 13F portfolio. The second-most bullish hedge fund manager was Visium Asset Management, led by Jacob Gottlieb, holding a $45.6 million position of 634,527 shares; 0.7% of its 13F portfolio was allocated to the stock. Some other hedge funds that were bullish contained Jim Simons‘ Renaissance Technologies, Gabriel Plotkin’s Melvin Capital Management, and Alexander Mitchell’s Scopus Asset Management.
Since Skechers USA Inc (NYSE:SKX) has experienced declining sentiment from the smart money, logic holds that there were a few hedge funds that decided to sell off their positions entirely in the first quarter. Interestingly, Ken Grossman and Glen Schneider’s SG Capital Management cut the largest investment of the 700 funds watched by Insider Monkey, totaling about $13.9 million in stock. David Keidan‘s fund, Buckingham Capital Management, also dropped its stock, about $11.1 million worth. These moves are important to note, as total hedge fund interest fell by three funds in the first quarter.
Given the rapid appreciation of the stock in the face of bearish hedge fund sentiment, it’s hard to recommend this stock right now at its rich valuation, although we can clearly say that in this case, the smart money has gotten it wrong so far.
Disclosure: None
