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After a Rebound, Is This Underdog Shoe Company's Stock Still a Value?

Shares of shoemaker Skechers (NYSE: SKX) have rebounded after hitting multiyear lows last fall. Hindsight says the best buying opportunity has passed, but after the bounce over the last few months, the stock was upgraded to a buy by several analysts.

Cratering stock, growing business

Through 2015, Skechers stock roared higher on the back of strong revenue and profit growth. The increasing popularity of athletic wear outside of the gym, dubbed "athleisure," fueled strong growth in the U.S. Aggressive international expansion also paid off, and the combination led to double-digit increases in the top and bottom lines.

Data by YCharts.

In 2016, though, overall revenue began to level off. Skechers' domestic business struggled with increased competition and shoe discounting, and the continued expansion overseas ate into the bottom line. The slowing pace of overall sales growth is what ultimately sent the stock south.

Chart by author. Data source: Skechers quarterly earnings.

Shares reached multiyear lows last October after another quarter of missed expectations, even though sales continued to grow -- albeit at a more modest pace than years past. Shares quickly rebounded, though, and adding fuel to the rekindled fire under the stock were analysts at Susquehanna and Citigroup recently upgrading their rating to "buy."

After visiting the company early in June, both analysts were encouraged by reportedly strong sales from Skechers' new line of women's shoes incorporating high-quality materials from the performance line in a casual design. The domestic business, which has been a drag the last few quarters, is now expected to pick up steam the second half of this year.

Skechers new line of women's casual shoes, YOU. Image source: Skechers.

Skechers' international edge

U.S. sales turning positive could be especially good news considering that amid Skechers' troubles the last couple of years, the international business continued to grow well into the double digits. Management has been pushing for half of sales to come from overseas, a goal that was met during the first quarter.

Chart by author. Data source: Skechers quarterly earnings.

Even after meeting the 50% goal, international sales still represent the biggest opportunity for Skechers. To better promote business in foreign countries, the company has been transferring distribution agreements to newly formed joint venture businesses and reports that the strategy has been working very well. In the first quarter, joint venture sales grew 52.9%. China provided a big boost with a 39.6% gain, and the new and still developing India business increased 85.1%.

Skechers' pursuit of expansion outside of the U.S. has provided huge upside, and while some markets like China are not growing as quickly as before, newer entries into countries like India look like they could continue to propel the percentage of total sales derived overseas well past the current 50% mark.

Chasing returns or long-term value?

Continued expansion has helped Skechers stock rebound 50% since its October earnings report, and that run could continue. The price-to-earnings ratio based on the past year's worth of profits is around 19, but that figure drops to around 14 using profit projections for the next 12 months. That compares to 21 and 38 forward P/Es for Nike (NYSE: NKE) and Under Armour (NYSE: UA), respectively.

Skechers remains the underdog in the U.S. shoe business. I understand that the shoes may lack some of the cool factor that bigger peers Nike and Under Armour possess, but the numbers don't lie: Skechers is more than holding its own in this race.

Data by YCharts.

For the sake of full disclosure, yours truly started accumulating shares of Skechers last fall during its downturn, and my plan is to hold for a long time. I'm biased, but with the company still posting strong growth rates, every time shares pull back in price I'm tempted to keep buying more.

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Nicholas Rossolillo owns shares of Skechers. The Motley Fool owns shares of and recommends Nike, Skechers, and Under Armour (C Shares). The Motley Fool has a disclosure policy.