Is Now The Time To Put Deckers Outdoor (NYSE:DECK) On Your Watchlist?

By
Simply Wall St
Published
March 21, 2022
NYSE:DECK
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

So if you're like me, you might be more interested in profitable, growing companies, like Deckers Outdoor (NYSE:DECK). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Deckers Outdoor

How Quickly Is Deckers Outdoor Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, Deckers Outdoor's EPS has grown 21% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Deckers Outdoor's EBIT margins were flat over the last year, revenue grew by a solid 26% to US$3.0b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NYSE:DECK Earnings and Revenue History March 21st 2022

Fortunately, we've got access to analyst forecasts of Deckers Outdoor's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Deckers Outdoor Insiders Aligned With All Shareholders?

Since Deckers Outdoor has a market capitalization of US$7.9b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Given insiders own a small fortune of shares, currently valued at US$93m, they have plenty of motivation to push the business to succeed. This should keep them focused on creating long term value for shareholders.

Does Deckers Outdoor Deserve A Spot On Your Watchlist?

You can't deny that Deckers Outdoor has grown its earnings per share at a very impressive rate. That's attractive. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. You should always think about risks though. Case in point, we've spotted 2 warning signs for Deckers Outdoor you should be aware of, and 1 of them is a bit concerning.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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