Stock Analysis

Deckers Outdoor Corporation's (NYSE:DECK) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

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NYSE:DECK
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Deckers Outdoor (NYSE:DECK) has had a great run on the share market with its stock up by a significant 25% over the last three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study Deckers Outdoor's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Deckers Outdoor

How To Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Deckers Outdoor is:

34% = US$613m ÷ US$1.8b (Based on the trailing twelve months to September 2023).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.34.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Deckers Outdoor's Earnings Growth And 34% ROE

First thing first, we like that Deckers Outdoor has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 15% also doesn't go unnoticed by us. This probably laid the groundwork for Deckers Outdoor's moderate 19% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Deckers Outdoor's growth is quite high when compared to the industry average growth of 14% in the same period, which is great to see.

past-earnings-growth
NYSE:DECK Past Earnings Growth December 1st 2023

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Deckers Outdoor fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Deckers Outdoor Using Its Retained Earnings Effectively?

Deckers Outdoor doesn't pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the decent earnings growth number that we discussed above.

Conclusion

In total, we are pretty happy with Deckers Outdoor's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

Valuation is complex, but we're helping make it simple.

Find out whether Deckers Outdoor is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About NYSE:DECK

Deckers Outdoor

Deckers Outdoor Corporation, together with its subsidiaries, designs, markets, and distributes footwear, apparel, and accessories for casual lifestyle use and high-performance activities in the United States and internationally.

Outstanding track record with flawless balance sheet.