As the book closes on one of the warmest years on record, it’s a good time to check up on Deckers Outdoor (NASDAQ:DECK), the purveyor of UGG-branded sheepskin boots. At the current stock price is DECK a BUY, WAIT and SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Technicals on the Stock Chart are Improving
Since the end of October, Deckers has seen its shares rally 23%. Comparatively, the benchmark S&P 500 Index is roughly unchanged (-0.5%) while shares of industry peer Crocs (NASDAQ:CROX) actually lost ground (-2.0%) over the same span.
DECK is within a hair’s breadth of its 50-day moving average. An imminent crossover should result in a good amount of buy-side support from technically oriented traders. Short covering could also provide a decent lift. As of October 31, more than 15.4 million DECK shares (roughly 42% of the entire float) were ‘held short’ and the stock’s latest run up should prompt some short sellers to lock in gains.
C = Catalyst for the Stock’s Movement
There is growing speculation that Deckers could attract buyout interest, either from a strategic acquirer within the soft goods space or a financial entity, such as a private equity firm. The current market valuation (10.5 times expected 2012 earnings) is compelling. So, too, is Deckers’s growing stable of so-called lifestyle brands including Teva (sandals) and Sanuck.
Another potential catalyst is the possibility the all-important holiday season won’t be as weak for Deckers as many bears currently expect. Uggs have reportedly been among the top-selling and/or top-searched brands of late on popular e-tailing sites, including Zappos. The news has helped allay fears that the strength of the company’s key brand is waning. (UGGs represented 85% of Decker’s overall wholesale shipments in 2011.)
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E = Earnings are Increasing Quarter over Quarter?
Earnings at Deckers…