Deckers Trades at a Premium: Should You Restrain Buying the Stock?

Core Viewpoint - Deckers Outdoor Corporation (DECK) is currently trading at a premium valuation compared to industry averages, suggesting potential overvaluation despite strong fundamentals and growth prospects [1][2][3]. Valuation - DECK is trading at a forward 12-month price-to-sales (P/S) multiple of 3.91X, significantly higher than the Zacks Retail-Apparel and Shoes industry's average of 1.61X and the Retail-Wholesale sector's 1.63X [1]. - The stock is above its five-year median P/S level of 3.24, indicating a premium valuation [1]. Recent Performance - DECK shares closed at $139.36, experiencing a 17.8% decline over the past month, compared to a 9.4% decline in the industry [3]. - The recent stock price drop is attributed to revenue slowdown and inventory constraints, particularly for the UGG brand, alongside potential gross margin pressure in the fourth quarter [4]. Brand Performance and Growth Opportunities - Deckers is enhancing brand assortments and optimizing distribution channels, with UGG and HOKA brands showing strong sales growth of 16.1% and 23.7% year-over-year, respectively [5][7]. - The direct-to-consumer (DTC) business is a major growth driver, with DTC net sales increasing 17.9% to $1.01 billion in the fiscal third quarter [8]. - International expansion, particularly in high-potential regions like China, is expected to accelerate revenue growth [9]. Financial Strength - Deckers maintains a strong financial position with a debt-free balance sheet and cash reserves of $2.24 billion as of December 31, 2024 [11]. - The company repurchased approximately 275 thousand shares for $44.7 million, with $640.7 million remaining under its share repurchase authorization [11]. Future Outlook - Total revenues are projected to increase by 15% year-over-year to $4.9 billion, with HOKA expected to grow by 24% and UGG by 10% [12]. - The gross margin is anticipated to reach or slightly exceed 57%, with earnings per share (EPS) guidance raised to $5.75-$5.80 [13]. Analyst Sentiment - Analysts have positively revised earnings estimates, with the consensus estimate for the current fiscal year at $5.89 per share, reflecting a year-over-year growth rate of 21.2% [14]. - Sales estimates for the current and next fiscal years are projected at $4.96 billion and $5.46 billion, indicating growth rates of 15.6% and 10.1%, respectively [15]. Competitive Position - Despite trading at a premium, Deckers is viewed as a compelling investment opportunity due to strong brand momentum and growth strategies [18].