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Good News Is Just Around the Corner for SKX Stock

A huge late day spike in SKX stock may be more than a head fake

By Luke Lango, InvestorPlace Contributor

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Skechers stock SKX stock

Source: McArthurGlen Designer Outlet via Flickr

In one of the oddest stock market moves in recent memory, shares of athletic apparel company Skechers (NYSE:SKX) popped more than 15% in a matter of minutes on huge volume near the end of the trading day on Thursday, Jan. 31. Yet, there was no news on the company. There was no earnings announcement. No press release. Nothing to suggest SKX stock was on the move.

Skechers stock has since given up those gains, and quickly. But, one has to wonder: does someone know something the rest of us don’t know?

A 15% move higher in a stock in matter of minutes and on huge volume is meaningful. It’s especially meaningful considering that earnings are due next week, and that buyout rumors have been swirling around this company for several weeks.

Thus, it’s reasonable to think that the huge late day spike in Skechers is the result of someone knowing something that the rest of us don’t know.

Indeed, I think good news is just around corner for Skechers. The stock is cheap enough and the company has strong enough fundamentals to attract serious M&A interest. Meanwhile, the company’s underlying growth trends remain favorable and lend themselves to a potential double-beat earnings report next week.

All in all, whether it be a M&A announcement or a double-beat earnings report, good news is likely just around the corner. Considering how cheap SKX stock is, such good news could cause a big pop in shares, and the bull thesis here and now looks quite compelling.

Does Someone Know Something?

When you see a stock rally 15% in a few minutes, on huge volume, and on no news, the suspicion is that somebody knows something the rest of us don’t know. Normally, I’d write off such suspicion as just wild speculation, and move on.

But, the situation feels different for SKX.

Earnings are due next week. My research indicates that those numbers should be pretty good. Search interest trends for Skechers have remained favorable over the past several months both domestically and internationally.

The company also had a big Super Bowl ad with Tony Romo. Skechers athlete Matt Kuchar won the Sony Open in Hawaii while wearing Skechers GO GOLF Pro 4 shoes, and that created a buzz on social media regarding GO GOLF shoes. Also, global advertising initiatives appear to progressing with healthy momentum.

Overall, it looks like earnings should be quite good. Perhaps somebody knows that they will be good, and that explains the sudden spike in Skechers stock.

Or, the spike could be due to someone knowing something on the M&A front. M&A rumors have been swirling around this company for several weeks. The rumored buyer was Vans parent company V.F. Corporation (NYSE:VFC). VFC has since largely dispelled those rumors. But, as I’ve pointed out before, Skechers is cheap enough with strong enough fundamentals to attract significant M&A interest outside of VFC.

Overall, a potential Skechers buyout is still on the table. Perhaps somebody knows that a buyout is coming, and that explains the sudden spike in Skechers stock.

Either way, it increasingly appears that good news is around the corner for SKX stock.

Good News Could Spark a Big Rally

Because Skechers stock is so beaten up and trades at such an anemic valuation, good news could cause a huge pop in shares.

At one point in time, Skechers was a $40 stock trading at well over 20 forward earnings and around 1.5 trailing sales. That valuation level felt right for SKX.

Nike (NYSE:NKE) trades at 30 forward earnings. Lululemon (NASDAQ:LULU) trades at 33 forward earnings. Under Armour (NYSE:UAA) trades at 60 forward earnings. All three trade between 1.7 and 6.5 trailing sales.

Thus, considering that Skechers is in the same space as Nike, Lululemon, and Under Armour, but also has lower brand equity, a slightly discounted valuation around 20 forward earnings and 1.5 trailing sales seemed appropriate.

Today, though, SKX stock trades well below those levels. This is a $26 stock trading at under one trailing sales and around 13 forward earnings. Those are anemic valuation levels for an athletic apparel stock, an apparel retail stock (average forward P/E multiple in that sector is 17), and a 10% earnings grower.

Overall, Skechers stock is just really, really cheap. The stock is also 40% off recent highs. Thus, any good news could cause a big pop in the stock.

Bottom Line on SKX Stock

Wall Street loves to hate Skechers. But, it increasingly appears like good news is just around the corner for Skechers, and Wall Street can’t turn a blind eye to good news.

As such, SKX stock looks ready to pop in February.

As of this writing, Luke Lango was long SKX, NKE, and LULU. 


Article printed from InvestorPlace Media, https://investorplace.com/2019/02/good-news-for-skx-stock-fimg/.

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