Core Viewpoint - Deckers' stock performance has been weak, remaining only about 5% above its 52-week lows, indicating a bearish market sentiment unless a rebound occurs [1] - The consumer discretionary sector is experiencing general weakness, impacting Deckers and its competitors [1] Company Analysis: Deckers - Deckers is positioned for potential growth due to its strong HOKA brand and solid financial health, which may allow it to outperform competitors like Nike [4][5] - Despite a nearly 50% decline in stock price year-to-date, Deckers maintains a strong balance sheet, enabling aggressive share repurchases and operational flexibility [6] - Deckers' valuation metrics are attractive, with a trailing P/E of 17.2 and a forward P/E of 17.6, significantly lower than Nike [6] - The enterprise value-to-sales ratio of Deckers is just over 2.5, close to Nike's, despite better growth prospects, indicating relative undervaluation [7] - Seasonal demand for UGGs may provide a tailwind for Deckers, with potential for a 20-30% rally by December 2025 if consumer spending stabilizes [7] Company Analysis: Nike - Nike is facing significant challenges, including a 12% revenue decline in Q4 2025, attributed to inventory issues and weakening demand in key markets [8] - The company's stock has dropped nearly 60% from its 2021 highs, reflecting lost market share to competitors like HOKA and Lululemon [9] - Nike's innovation stagnation and flawed direct-to-consumer strategy have negatively impacted brand desirability among younger consumers [9] - The company is estimating over $1 billion in additional costs from tariffs, further straining its EBITDA margins, which are currently around 14% [10] Trade Strategy - A pairs trade strategy is proposed, taking a long position in Deckers and a short position in Nike to capitalize on diverging fundamentals within the athletic footwear sector [3][12] - This strategy aims to neutralize broader market risks while leveraging Deckers' superior growth rates and lower P/E multiple compared to Nike [13] - Even if Deckers' net income margins were halved, it would still trade at a similar multiple to Nike, highlighting its better growth potential [13]