Surfing brings the world good things. The Beach Boys. Annette Funicello. Dick Dale. And, more recently, Ugg boots. Now Ugg boots maker Deckers Outdoor (DECK), Monday’s IBD 50 Growth Stock To Watch, may be about to bring some good things to investors.
Deckers stock has averaged a 44.7% gain over the past five years. The smallest increase during that period was a 32% advance in 2019. The greatest was last year’s 69.8% romp. This year, the stock is up 52% since Dec. 31.
The highflying footwear maker’s shares rose 14 of the past 16 months. It is currently a stock to watch because it has paused just long enough to produce a three-weeks-tight pattern.
A couple of University of California, Santa Barbara grads founded Deckers in 1973. The company went public 20 years later.
The founders started out making flip-flops, which Hawaiians reportedly referred to as “deckas.” In 1985 they began distributing Teva sandals. In 1995, they bought Ugg Holdings. They bought Teva’s brand, patents and other assets in 2002. In 2013, they also acquired athletic shoe maker Hoka One One.
Stock To Watch Deckers: Cash Rich, No Debt
Uggs, by the way, is apparently a common old Australian term for sheepskin. It has translated into the U.S. lexicon as a fashion term, one meaning lots of cash.
For 2021, Uggs product generated 58% of Deckers’ income. Hoka brought in 22%. Teva generated just over 5%. More than 69% of the company’s $504.2 million in income came from direct-to-consumer sales. That was up from 54% in 2020.
Over the past five years, Deckers has made itself a stock to watch, generating average revenue growth of 7%, while earnings grew at a 33% pace. For fiscal 2022, analysts project a 17% earnings gain and a 22% rise in revenue. Deckers topped analyst earnings targets three of the last four quarters. That included a surprise profit in the fiscal first-quarter. The Goleta, Calif.-based company’s fiscal year closes at the end of March.
At the end of the fiscal first quarter, Deckers reported $956.7 million in cash and equivalents, down from $1.09 billion at the end of March. The company is currently reporting no long-term debt.
Crocs Vs. Uggs
Chartwise, Deckers is a solid piece of work. Shares broke out of a six-week flat base in June. They are now up more than 23% from that entry. That puts the stock in a profit-taking zone, but doesn’t explain why Deckers is a current stock to watch.
The level trading begun in early August produced three weekly closes within 1% of each other. The result is a follow-on buy opportunity called a three-weeks-tight pattern. Follow on buying opportunities are good for adding to existing positions. They are not recommended for establishing a new position in a stock, unless you have strong conviction about the company.
Deckers’ buy point is at 444.58. The stock to watch was about 2% below that mark on Monday.
Deckers’ Accumulation/Distribution Rating is a B, suggesting institutional investors are buying. Its Composite Rating is a best-possible 99. It is the No. 2-ranked stock in IBD’s Apparel-Shoes & Related industry group, just behind another familiar Australian term, Crocs (CROX).
Find Alan R. Elliott on Twitter @IBD_Aelliott
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