I occasionally (and sometimes often) get things very very wrong. I once thought M&I (MI) was one of the better bank stocks out there in 2007, for instance, something that was only true if you compared it to Washington Mutual or Wachovia. In September, admittedly not knowing anything about fashion I thought Skechers (SKX) was the better buy over Crocs (CROX). That was... um.... very very wrong. Steve rightly pointed out that Skechers stores in the malls seemed devoid of customers while Crocs were still in fashion, to my utter amazement. Thank God I exercised prudence and didn't speculate in an area I knew nothing about.
If those five unheard of companies I recommended in early August were my moment of pride and joy this year (if you bought a basket of them you did quite well), this is my moment of shame, where I got a call absolutely 100% dead wrong.
Showing posts with label CROX. Show all posts
Showing posts with label CROX. Show all posts
Friday, December 24, 2010
Monday, September 13, 2010
Flat Footed?
Steve was kind enough to point out two opportunities in the footwear sector that opened up last week while I was in the midst of a particularly brutal week of 10 and 11 hour days. I've had the chance to take a look at them this weekend and today, and I wanted to chime in.
These are specifically Crocs (CROX) and Skechers (SKX). While Crocs has taken a more recent and dramatic hit, Skechers interests me because it is down so much over a protracted period of time and because of its PE ratio of... 7. Before continuing, here are the charts:
Under most circumstances I am usually leery of charts like Skechers'. What seems to have happened in this case is that there is a wicked case of multiple compression. Apparently, the sales forecasts for a particular shoe (I know nothing of fashion so I won't even try) the market had built into the price were a little too much and the growth rate has come into something more reasonable. To be perfectly honest, you don't need very much of a growth rate at all to justify a 7 PE.
In a market that is valuing a great many stocks at criminally cheap PEs, single digit PEs shouldn't draw so much attention, but for a clearly growing company this gives me pause. There have been fashion related stocks in the past that seem to be getting very cheap, but then they are doing so for a reason. Chicos FAS (CHS) dropped about 50% in 2006 from $40 to $20 and saw a multiple compression from 40x earnings to about 17x earnings, which was a little cheap compared to the market at the time and its growth rate still seemed alright. It's at $9 now and trading at 13.7x earnings. That being said, Skechers seems particularly attractive and could actually see earnings drop as much as 30% without becoming unattractive. It's not often you can say that about a company.
As for Crocs, I have to be honest that I never understood the trendiness of their products to begin with so when they nearly went under a year and a half ago I wasn't shocked. They've come back in nearly Ford-ian fashion, perhaps better, and I have to be honest that I don't fully understand whether or not they are back in style. Earnings have recovered notably and their forecast reduction really wasn't that bad. The stock price hit I think reflected that traders had been continuously hiking estimates and when Crocs simply brought them back down to a reasonable level the stock had to come in.
Between the two of them, a small position in Skechers makes the most sense to me, but I will confess ignorance of fashion trends and that can be more than enough to doom you in this sector.
These are specifically Crocs (CROX) and Skechers (SKX). While Crocs has taken a more recent and dramatic hit, Skechers interests me because it is down so much over a protracted period of time and because of its PE ratio of... 7. Before continuing, here are the charts:
Under most circumstances I am usually leery of charts like Skechers'. What seems to have happened in this case is that there is a wicked case of multiple compression. Apparently, the sales forecasts for a particular shoe (I know nothing of fashion so I won't even try) the market had built into the price were a little too much and the growth rate has come into something more reasonable. To be perfectly honest, you don't need very much of a growth rate at all to justify a 7 PE.
In a market that is valuing a great many stocks at criminally cheap PEs, single digit PEs shouldn't draw so much attention, but for a clearly growing company this gives me pause. There have been fashion related stocks in the past that seem to be getting very cheap, but then they are doing so for a reason. Chicos FAS (CHS) dropped about 50% in 2006 from $40 to $20 and saw a multiple compression from 40x earnings to about 17x earnings, which was a little cheap compared to the market at the time and its growth rate still seemed alright. It's at $9 now and trading at 13.7x earnings. That being said, Skechers seems particularly attractive and could actually see earnings drop as much as 30% without becoming unattractive. It's not often you can say that about a company.
As for Crocs, I have to be honest that I never understood the trendiness of their products to begin with so when they nearly went under a year and a half ago I wasn't shocked. They've come back in nearly Ford-ian fashion, perhaps better, and I have to be honest that I don't fully understand whether or not they are back in style. Earnings have recovered notably and their forecast reduction really wasn't that bad. The stock price hit I think reflected that traders had been continuously hiking estimates and when Crocs simply brought them back down to a reasonable level the stock had to come in.
Between the two of them, a small position in Skechers makes the most sense to me, but I will confess ignorance of fashion trends and that can be more than enough to doom you in this sector.
Subscribe to:
Posts (Atom)