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In the world of athletic footwear and apparel, few companies command as much attention as Nike (NKE). However, a formidable rival has been making significant strides in recent years: Deckers Outdoor Corporation (DECK). With its innovative brands, particularly HOKA, Deckers has been steadily gaining market share and catching the eye of Wall Street. Now, with an impending stock split and impressive growth prospects, DECK is positioned to be Wall Street's next big stock to watch.
The announcement of a six-for-one stock split by Deckers Brands is a strategic move designed to make the stock more accessible to a broader range of investors. Stock splits often generate renewed interest, and can lead to a short-term boost in stock price due to increased demand.
In addition to the buzz surrounding the stock split, analysts have taken note of DECK’s investment potential. Currently rated as a “Moderate Buy,” DECK stock has an estimated 18.5% upside to Wall Street's mean price target, reflecting positive sentiment from the investment community.
Let's delve into Deckers Outdoor's financials, valuation, growth prospects, and sentiment in the options market, and evaluate whether it’s a sound addition to your investment portfolio.
About Deckers Outdoor Stock
Deckers Outdoor (DECK) is a casual lifestyle and performance-driven company specializing in footwear, apparel, and accessories. It operates through its five proprietary brands, namely UGG, HOKA, Teva, Sanuk, and Koolaburra. The company’s market cap currently stands at about $22.6 billion.
Shares of Deckers Outdoor have climbed 33% on a year-to-date basis, outperforming the S&P 500 Index’s ($SPX) gain of 17.2% over the same period.
Recent News for DECK Stock
On July 12, the HOKA division of Deckers Brands unveiled the Speedgoat 6. This latest iteration of the Speedgoat is crafted to provide an ideal blend of cushioning and traction, catering perfectly to training and racing needs.
On June 26, the company's Teva brand launched Aventrail, its most innovative trail running sandal yet. Aventrail fills a niche in the trail running market, offering a blend of minimal support found in sandals and the underfoot innovation and cushioning typical of modern running shoes.
On July 11, Wedbush noted that shares of Deckers Outdoor have declined over 20% since reaching a peak in early June, suggesting a favorable buying opportunity. The firm labeled Deckers one of the strongest and best-run companies in its coverage, and maintained an “Outperform” rating on the shares with a price target of $1,030.
“Brand heat remains high at both the company’s core brands, Hoka and Ugg, though we’re at the seasonal low point of the year for Ugg, so the story will likely hinge on Hoka in the near term,” the analyst told investors in a research note.
On May 28, Truist analyst Joseph Civello upgraded Deckers Outdoor to “Buy” from “Hold” with a price target of $1,200, up from $1,011.
“While we have always been bullish on [HOKA’s] long-term growth runway to capture market share, we once again believe that the brand’s near-term growth can continue to outpace expectations,” the analyst wrote. Also, the firm noted that UGG’s brand “remains strong,” emphasizing solid growth prospects stemming from its expanding product range and growing international presence.
Deckers Outdoor Announces Six-for-One Forward Stock Split
On July 12, Deckers Brands announced its board’s approval of a six-for-one forward stock split, alongside an increase in the number of authorized shares of common and preferred stock. The company stated its intention to seek shareholder approval related to this matter at its annual meeting of stockholders scheduled for Sept. 9. Trading of the shares on a post-stock split-adjusted basis is anticipated to commence from the market open on Sept. 17.
“The trading price of our common stock has risen significantly over the past several years as a result of our strong financial performance and the execution of our strategic plan,” said CEO Dave Powers. “We believe effecting the forward stock split will make the shares of our common stock more affordable and attractive to a broader group of potential investors, including our employees, and increase the liquidity of the trading of the shares of our common stock.”
How Did Deckers Outdoor Perform in Q4?
On May 23, Deckers Outdoor reported better-than-expected fiscal Q4 earnings results, propelling its shares to a gain of over 14% in the subsequent trading session. Its fourth-quarter net sales increased 21.2% year-over-year to $959.8 million, propelled by robust performance in both its HOKA and UGG brands. The company maintained its focus on product innovation tailored to specific consumer segments and effectively engaged customers through distinctive brand experiences, resulting in significant levels of full-price sales. DECK’s top line surpassed Wall Street’s expectations by $70.96 million.
Q4 net sales for the HOKA brand surged by 34.0% year-over-year to $533.0 million, while net sales for the UGG brand rose by 14.9% year-over-year to $361.3 million, collectively comprising 93.2% of total quarterly revenue. The company’s top two brands have thrived thanks to DECK’s effective product pipeline, strong innovation, expansion in its direct-to-consumer channel, and targeted investments aimed at increasing market share internationally. It is also important to note that the company’s HOKA brand continues to gain market share from Nike, the world's largest shoemaker, primarily due to increased brand awareness.
Not only has the company generated higher revenues, but it has also improved profitability, which is a crucial factor for long-term success. In Q4, DECK's gross margin increased to 56.2%, marking a 620 basis point improvement from the previous year, while the operating margin expanded to 15% from 13.4%.
From a liquidity perspective, the company is in a strong position. It maintains minimal debt and boasts liquidity ratios - current and quick ratios - that comfortably exceed one.
Looking ahead, management anticipates a 10% year-over-year increase in sales to $4.7 billion for fiscal 2025, with projected EPS in the range of $29.50 to $30.00, and anticipates a gross margin of around 53.5%.
Analysts tracking Deckers Outdoor expect the company’s profit to reach $30.59 per share in fiscal 2025, up 4.90% year-over-year. In addition, analysts on Wall Street project DECK’s revenue to increase by 11.78% year-over-year to $4.79 billion in FY2025.
The company is expected to report its Q1 earnings results next Thursday, July 25. Analysts anticipate a 46.06% year-over-year increase in EPS to $3.52 for the quarter, with revenue expected to rise 18.83% year-over-year to $803.03 million.
Is DECK Stock Overvalued?
When assessing Deckers Outdoor’s valuation, the stock is currently trading at 29.48 times the consensus earnings estimate for FY25, significantly above both the sector median of 15.79x and its own five-year average of 23.12x. However, the premium is well justified due to the stock's exceptional growth.
Moreover, such an elevated level of investor optimism, reflected through the high P/E multiple, can be attributed to the company’s track record of surpassing its earnings guidance over the last four quarters by an average of 40%.
Options Market Sentiment on Deckers Outdoor Stock
Looking at the August 16, 2024, option chain, there is a bid/ask spread of $52.00/$57.00 for the $890.00 CALL option and $45.40/$52.50 for the $890.00 PUT option. Keep in mind this is the options strike nearest to the current stock price. We can determine the anticipated price movement by using the midpoint prices of these options:
48.95 (890.00 put) + 54.50 (890.00 call) = 103.45/889.62 = 11.62%
Based on current prices, the options market suggests that DECK stock could potentially rise or fall by approximately 12% by the August options expiration from the $890.00 strike price, using the long straddle strategy. That would place the stock in a trading range of about $782.87 to $996.
At the $890.00 strike price, there are roughly twice as many open calls as open puts, with 11 open calls compared to 6 open puts. This reflects a bullish sentiment, though the sample size is very small.
What Do Analysts Expect For DECK Stock?
Overall, analysts have deemed Deckers Outdoor stock a “Moderate Buy,” with a mean target price of $1,054.33, which indicates an upside potential of about 19% from current price levels. Out of the 18 analysts offering recommendations for the stock, 12 suggest a “Strong Buy,” one advises “Moderate Buy,” and the remaining five give a “Hold” rating.
The Bottom Line on DECK Stock
All things considered, I believe DECK deserves a place in investors’ portfolios at current levels, particularly with the upcoming stock split. The company looks compelling based on its fundamentals. Robust revenue growth, fueled by strong demand and substantial pricing power, coupled with improving profitability, are encouraging indicators for the future.
On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
