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Is Skechers U.S.A. (SKX) a Great Choice for Value Investors?

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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Skechers U.S.A., Inc. (SKX - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Skechers U.S.A.has a trailing twelve months PE ratio of 16.47, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.59. If we focus on the long-term PE trend, Skechers U.S.A.’s current PE level puts it below its midpoint over the past three years, with the number having risen gradually over the past few months.

This increase could be due to the fact that the stock’s price has been increasing somewhat while earnings have been on a downtrend over the past few months. Both of these trends have had an inflating effect on the PE ratio.

Further, the stock’s PE also compares favorably with the Zacks classified Consumer Discretionary sector’s trailing twelve months PE ratio, which stands at 23.40. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

 

We should also point out that Skechers U.S.A. has a forward PE ratio (price relative to this year’s earnings) of just 14.81, so it is fair to say that a slightly more value-oriented path may be ahead for Skechers U.S.A. stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Skechers U.S.A.  has a P/S ratio of about 1.13. This is quite lower than the S&P 500 average, which comes in at 3.18 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.

If anything, this suggests some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Skechers U.S.A. currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Skechers U.S.A.  a solid choice for value investors.

What About the Stock Overall?

Though Skechers U.S.A. might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘B’. This gives SKX a Zacks VGM score—or its overarching fundamental grade—of‘ B’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been mostly bearish. The current quarter has seen one estimate go lower in the past sixty days compared to none higher, while the full year estimate has seen one up and two down in the same time period.

This has had a noticeable impact on the consensus estimate though as the current quarter consensus estimate has dropped by 19.4% in the past two months, while the full year estimate has risen by 1.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Skechers U.S.A., Inc. Price and Consensus

Skechers U.S.A., Inc. Price and Consensus | Skechers U.S.A., Inc. Quote

This somewhat bearish trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.

Bottom Line

Skechers U.S.A.  is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among the Bottom15%) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks categorized Shoes and Retail Apparel industry has clearly underperformed the broader market, as you can see below:

So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

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