The S&P 500 is the most widely followed stock market index in the U.S. and consists of the 500 largest publicly traded companies in the country. Given the scope of its membership, it is considered by many investors to be the most dependable gauge of overall stock market performance. To be included in the S&P 500, a company must meet the following criteria:
Be based in the U.S.
Have a market cap of at least $8.2 billion.
Have a minimum of 50% of its outstanding shares available for trading.
Be profitable on a GAAP basis in its most recent quarter.
Be profitable, in aggregate, over the preceding four quarters.
Deckers Outdoor (NYSE: DECK) is one of the most recent additions to the S&P 500, joining the fold on March 18, one of only 11 companies to be added to the index so far this year. Furthermore, the outdoor footwear and apparel specialist recently completed a 6-for-1 forward stock split, usually reserved for companies with years of strong business and financial results. Since it went public 21 years ago, Deckers shares have soared 12,870% (as of this writing), as the company has navigated the vagaries of the ever-changing outdoor apparel market. Those results aren't relegated to some distant past either. Over the past five years, Deckers stock has surged 548%.
Despite its impressive rise, many on Wall Street believe there are additional gains to be had. Let's look at why Deckers has been so successful and what the future holds.
From humble beginnings
Deckers got its start in the surf culture in the early 1970s, creating a comfortable yet stylish sandal that soon became a staple among California surfers. From those humble beginnings, Deckers has forged a multinational path by focusing on niche offerings with a wide appeal. Its iconic footwear brands include Hoka, Ugg, Teva, Ahnu, and Koolabura. The company's expanding line of performance footwear, strong brands, and reputation for comfort have catapulted Deckers to international success.
These factors have helped the company generate impressive financial results, and the past year has pushed the stock to a new zenith. After delivering record sales and profitability during its fiscal 2024 (ended March 31), Deckers kicked off this year with a bang.
For its fiscal 2025 first quarter (ended June 30), the company generated revenue of $825 million, up 22% year over year, while its diluted earnings per share (EPS) of $4.52 soared 87%. If that wasn't enough to grab shareholders' attention, Deckers increased its full-year profit forecast to EPS of $30.20 at the midpoint of its guidance, which would mark a new high watermark for performance.
The enduring appeal of Deckers footwear has propelled the company to new heights, and that appears poised to continue. The company has been taking market share from its larger rivals. Furthermore, even as the competition is cutting prices and offering discounts to lure customers, Deckers is selling its most popular brands at full retail prices.
Last fiscal year, sales of the company's luxury lifestyle brand Ugg climbed 16% to $2.2 billion, while its high-end Hoka running shoe brand surged 28% to $1.8 billion and they show no signs of slowing. Deckers is taking the lessons learned from its most popular makes to reignite sales of its other brands. The company is also working to expand its international and direct-to-consumer sales and those efforts could boost its results for the foreseeable future.
There's another reason for investors to be excited. Since the company began buying back stock in 2012, Deckers has decreased its share count by nearly 34%, giving shareholders an even bigger piece of the earnings pie. The company bought back $152 million worth of stock in Q1 and has roughly $790 million remaining on its current repurchase authorization.
Analysts are still bullish on Deckers
Wall Street is famous for its diverse group of opinions, so it's noteworthy that the majority of analysts that cover Deckers believe there's still upside ahead. Of the 22 analysts that covered the stock in September, 16 rated it a buy or strong buy, and none recommend selling. Furthermore, an average price target of roughly $179 suggests that Deckers stock has 15% upside compared to Tuesday's closing price.
However, UBS analyst Jay Sole is the biggest bull among his Wall Street colleagues, with a buy rating and a split-adjusted Street-high price target of $225. That suggests potential gains for investors of 45% compared to Tuesday's closing price. The analyst cites Deckers' robust quarterly results and the ongoing strong demand for its Hoka and Ugg brands.
Despite the stock's relentless climb over the past few years, it's still attractively priced, selling for roughly 30 times earnings, matching the current multiple of the S&P 500 -- despite outpacing the index by a wide and growing margin in recent years. Perhaps more importantly, analysts' consensus estimates are calling for EPS of $6.05 for Deckers next fiscal year, so the stock is selling for less than 26 times next year's earnings -- an even better bargain.
That's why Deckers stock is a buy.
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Danny Vena has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Meet the Newest Stock-Split Stock in the S&P 500. It Soared 12,870% Since Its IPO, and Wall Street Says It's Still a Buy Right Now. was originally published by The Motley Fool