Skechers (NYSE:SKX) is the forgotten little brother in the athletic apparel game. The conversation in this space almost always revolves around Nike (NYSE:NKE), Adidas (OTCMKTS:ADDYY), Under Armour (NYSE:UAA), and recently Lululemon (NASDAQ:LULU). But Skechers, much like SKX stock, has been the ugly duckling of the industry for a long time now.
That might all change soon.
Skechers reports third-quarter numbers after the bell on Thursday, Oct. 18. I think those numbers will be very good, and spark a big rally in SKX stock, which could last a few quarters.
Why? The thesis is simple. The chunky/ugly/dad sneaker trend is in, and Skechers is at the forefront of this rising trend. This trend is still in its early stages, and projects to last for a lot longer. As a result, Q3 numbers and the Q4 guide should both be strong. Strong numbers and a strong guide will easily propel SKX stock higher, given that the stock is trading near 52-week lows and at just 15X forward earnings.
In other words, you have a really beaten up and cheap stock gearing up to report potentially strong numbers. That is a healthy combination for a big post-earnings rally in SKX stock.
Skechers Is Back In Style
It may be hard to believe, but the fashion trend is finally moving in favor of Skechers.
Chunky sneakers are in. These used to be considered dad shoes or ugly sneakers. But, because of their uniqueness and comfort, they are making a huge comeback. According to women’s fashion media company Refinery29, chunky sneakers are the most hyped sneakers of 2018. Health oriented company Well+Good noted that chunky sneakers are the biggest streetwear trend of 2018. Vogue, USA Today, Bustle and GQ have also all highlighted this chunky/dad/ugly sneaker trend, and Google Trends show that chunky sneakers search interest has simply exploded higher over the past few months.
At the forefront of this trend is Skechers. Skechers used to be uncool because it featured so many chunky/dad/ugly styles. Now, those very same styles are making it cool once again. In almost all the articles I’ve come across talking about chunky sneakers, Skechers is mentioned as one of, if not the, biggest brand in the space. Moreover, worldwide search interest related to Skechers is trending up nicely, while search interest related to Skechers chunky sneakers, D’Lites, has noticeably spiked recently.
Overall, the trend is now Skechers’ friend. I think that means Q3 numbers will be very good, and that the Q4 guide will be strong, too. A strong quarter plus a strong guide could spark a big rally in SKX stock.
Skechers Stock Could Pop
This earnings season, a lot of stocks are pressured by too much hype and overextended valuations.
Not Skechers. SKX stock trades at just 15X forward earnings. NKE stock trades at nearly 30X forward earnings. LULU stock trades at 40X forward earnings. UAA stock trades at a triple-digit forward multiple.
Meanwhile, SKX stock trades essentially at 52-week lows. NKE stock trades near all-time highs. Same with LULU stock. UAA stock, although well off all-time highs, is also well above 52-week lows.
Clearly, SKX stock won’t fall victim to too much hype or an overextended valuation. Instead, the stock is currently in the exact opposite position. At 52-week lows and with a 15 forward multiple, this stock has zero hype and a depressed valuation.
When a stock with zero hype and a depressed valuation reports strong quarterly numbers, you tend to get a big pop. I think that is exactly what will happen with SKX stock. It is far from a sure thing. Earnings plays are always risky, and no one should be throwing their lunch money into a stock before earnings. But, as far as earnings plays go, SKX stock is close to as good as it gets.
Bottom Line on SKX Stock
Earnings plays are risky, so a post-earnings rally in SKX stock isn’t anything you want to be too sure of. But, the situation looks favorable considering you have a beaten up and cheap stock heading into what data and trends suggest should be a strong report. As such, I’m cautiously optimistic on earnings and bullish on SKX stock in the long term.
As of this writing, Luke Lango was long SKX.
