One of the smartest ways to play a market that continues to come off the lows is to look for fundamentally sound companies that have seen positive trends in their earnings outlooks. Indexes will run into spots of technical resistance, but investors are still shopping for deals, and that's when the fundamentals can be handy.
This is why the Zacks Rank is so useful right now. The foundation of this model is the relationship between share prices and earnings estimates. When a stock's earnings estimates are revised higher, that stock tends to move in similarly positive direction over time.
One stock that the Zacks Rank has spotted in recent days is Deckers Outdoor Corporation ((DECK - Free Report) ). The company is a global footwear powerhouse, leading the design, marketing, and distribution of brands such as UGG, Koolaburra, HOKA ONE ONE, Teva and Sanuk.
DECK is holding a Zacks Rank #1 (Strong Buy) and has witnessed positive EPS estimate revisions in the past few weeks. In fact, the Zacks Consensus for its fiscal year ending in March is now two cents higher than it was just last week, and estimates for the following fiscal year have trended up to the same degree.
These positive revisions are making Deckers' near-term growth prospects look even stronger. The company is now expected to finish the current fiscal year with bottom-line growth of 19%, and that is projected to continue to the tune 7% next year. Analysts have the company's revenue growing at 3% and 4%, respectively, in those periods.
This bullishness is really no surprise when we look at Deckers' recent quarterly performances. The company has surpassed EPS estimates in each of the trailing four quarters, beating the Zacks Consensus by an average of 69% over those periods.
Deckers likely owes its current strength to the popularity of its brands. Management has a proven track record of building niche footwear brands into segment leaders, but it can't be understated how on trend its portfolio is right now. UGG has new life among its core demographic, and lines like Teva and Sanuk are really resonating with younger audiences.
Besides its Zacks Rank, DECK is holding a “C” grade in the Value category of our Style Scores system. This is because key valuation metrics are relatively in line with its peers. The stock is trading at about 16.5x earnings, which is right near where similar companies such as Steve Madden ((SHOO - Free Report) ) are at currently.
In other words, Deckers is not quite undervalued, but it also isn't overpriced. With near-term growth prospects abound and analyst estimates on the uptrend, however, this stock still looks like a good deal.
Moreover, Deckers has a long-term restructuring plan in place for investors that are interested in holding for an extended period of time. This plan has included the realignment of brands in two groups, which should allow it to better focus marketing efforts.
Deckers is also working on a store fleet optimization plan focused on striking the right balance between digital and physical stores. By fiscal 2020, Deckers expects its company-owned fleet of stores to be at about 125, with continued omni-channel e-commerce coming over the same time. The company expects this to boost profitability and shareholder returns.
All in all, it is clear that DECK has plenty to offer investors both in the near-term and in the future.
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