Why Skechers (SKX) is a Top Value Stock for the Long-Term

For Immediate Release

Chicago, IL – November 13, 2024 – Stocks in this week’s article are StoneCo Ltd. STNE, Skechers U.S.A., Inc. SKX, Pfizer Inc. PFE and General Motors Co. GM.

Build a Balanced Portfolio with 4 Top Value Stocks as Markets Surge

The U.S. stock market continued its upward momentum on Monday, reaching fresh highs amid optimism spurred by the recent presidential election and favorable economic signals. Wall Street's major indexes closed at new highs, building on Friday's record-breaking performance. Investors appear increasingly positive about the prospects of pro-growth fiscal policies under President-elect Donald Trump, while the Federal Reserve's recent interest rate cut has also bolstered market sentiment.

The S&P 500 rose 0.10% to close at 6,001.35, while the Nasdaq Composite jumped 0.06%, ending the session at 19,298.76. Leading the gains, the Dow Jones Industrial Average climbed 0.69% to reach 44,293.13. Bitcoin also hit unprecedented levels, marking a significant milestone in the cryptocurrency market.

As major indexes hit record highs and digital assets reach unprecedented levels, investors might consider balancing their portfolios with value stocks. Typically trading below their intrinsic value, these stocks offer a margin of safety during market fluctuations.

When evaluating value stocks, one of the most effective valuation metrics is the Price to Cash Flow (P/CF) ratio. This metric measures the market price of a stock relative to the cash flow the company generates on a per-share basis. A lower P/CF ratio indicates that the stock is trading at a better value, offering strong cash generation potential relative to its price. Here are four companies — StoneCo Ltd., Skechers U.S.A., Inc., Pfizer Inc. and General Motors Co. — that boast low P/CF ratios, making them strong contenders for value-seeking investors.

Price to Cash Flow Reveals Financial Health

Questions may arise as to why we are considering the P/CF valuation metric when the most widely used metric is Price/Earnings (or P/E). Well, what makes P/CF stand out is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly reflecting the financial health of a company.

Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. However, cash flow is reliable. It is net cash flow that reveals how much money a company is actually generating and how effectively management is putting the same to use.

A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, shell out for its expenses, reinvest in its business, endure downturns, and finally pay back its shareholders. Then again, a negative cash flow implies a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.

What’s the Best Value Investing Strategy?

An investment decision solely based on the P/CF metric may not fetch the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and also consider the price-to-book ratio, price-to-earnings ratio, and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chance of falling into a value trap.

Here are four of the nine value stocks that qualified the screening:

StoneCo is a leading provider of financial technology and software solutions that facilitate merchants to conduct commerce seamlessly. This Zacks Rank #1 company has a trailing four-quarter earnings surprise of 5.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for StoneCo’s current financial year sales and earnings per share (EPS) suggests growth of 0.2% and 24.7%, respectively, from the year-ago period. STNE has a Value Score of B. Shares of STNE have decreased 4.4% in the past year.

Skechers designs, develops and markets a diverse range of lifestyle and performance footwear, apparel, and accessories. This Zacks Rank #2 company has a trailing four-quarter earnings surprise of 8.8%, on average.

The Zacks Consensus Estimate for Skechers’ current financial year sales and EPS suggests growth of 12.2% and 20.6%, respectively, from the year-ago period. Skechers has a Value Score of A. Shares of SKX have rallied 23.5% in the past year.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Pfizer, which develops, manufactures, markets, distributes, and sells biopharmaceutical products, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 74.5%, on average.

The Zacks Consensus Estimate for Pfizer’s current financial year sales and EPS suggests growth of 7.7% and 56.5%, respectively, from the year-ago period. Pfizer has a Value Score of A. Shares of PFE have declined 9.4% in the past year.

General Motors, which designs, builds, and sells cars, trucks, crossovers, and automobile parts globally, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 17.5%, on average.

The Zacks Consensus Estimate for General Motors’ current financial year sales and EPS suggests growth of 4.8% and 34%, respectively, from the year-ago period. General Motors has a Value Score of A. Shares of GM have advanced 114.4% in the past year.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2369188/build-a-balanced-portfolio-with-4-top-value-stocks-as-markets-surge

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Zacks Investment Research

The U.S. stock market continued its upward momentum on Monday, reaching fresh highs amid optimism spurred by the recent presidential election and favorable economic signals. Wall Street's major indexes closed at new highs, building on Friday's record-breaking performance. Investors appear increasingly positive about the prospects of pro-growth fiscal policies under President-elect Donald Trump, while the Federal Reserve's recent interest rate cut has also bolstered market sentiment.

The S&P 500 rose 0.10% to close at 6,001.35, while the Nasdaq Composite jumped 0.06%, ending the session at 19,298.76. Leading the gains, the Dow Jones Industrial Average climbed 0.69% to reach 44,293.13. Bitcoin also hit unprecedented levels, marking a significant milestone in the cryptocurrency market.

As major indexes hit record highs and digital assets reach unprecedented levels, investors might consider balancing their portfolios with value stocks. Typically trading below their intrinsic value, these stocks offer a margin of safety during market fluctuations.

When evaluating value stocks, one of the most effective valuation metrics is the Price to Cash Flow (P/CF) ratio. This metric measures the market price of a stock relative to the cash flow the company generates on a per-share basis. A lower P/CF ratio indicates that the stock is trading at a better value, offering strong cash generation potential relative to its price. Here are four companies — StoneCo Ltd. STNE, Skechers U.S.A., Inc. SKX, Pfizer Inc. PFE and General Motors Company GM — that boast low P/CF ratios, making them strong contenders for value-seeking investors.

Price to Cash Flow Reveals Financial Health

Questions may arise as to why we are considering the P/CF valuation metric when the most widely used metric is Price/Earnings (or P/E). Well, what makes P/CF stand out is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly reflecting the financial health of a company.

Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. However, cash flow is reliable. It is net cash flow that reveals how much money a company is actually generating and how effectively management is putting the same to use.

A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, shell out for its expenses, reinvest in its business, endure downturns, and finally pay back its shareholders. Then again, a negative cash flow implies a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.

What’s the Best Value Investing Strategy?

An investment decision solely based on the P/CF metric may not fetch the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and also consider the price-to-book ratio, price-to-earnings ratio, and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chance of falling into a value trap.

Here are the parameters for selecting true-value stocks:

P/CF less than or equal to X-Industry Median.

Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.

Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.

P/E using (F1) less than or equal to X-Industry Median: This parameter shortlists stocks that are trading at a discount or are equal to their peers.

P/B less than or equal to X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.

P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock price compares to the company’s sales — the lower the ratio, the more attractive the stock is.

PEG less than 1: The ratio is used to determine a stock's value by taking the company's earnings growth into account. The PEG ratio portrays a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and that investors need to pay less for a stock that has robust earnings growth prospects.

Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.

Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.

Here are four of the nine value stocks that qualified the screening:

StoneCo is a leading provider of financial technology and software solutions that facilitate merchants to conduct commerce seamlessly. This Zacks Rank #1 company has a trailing four-quarter earnings surprise of 5.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for StoneCo’s current financial year sales and earnings per share (EPS) suggests growth of 0.2% and 24.7%, respectively, from the year-ago period. STNE has a Value Score of B. Shares of STNE have decreased 4.4% in the past year.

Skechers designs, develops and markets a diverse range of lifestyle and performance footwear, apparel, and accessories. This Zacks Rank #2 company has a trailing four-quarter earnings surprise of 8.8%, on average.

The Zacks Consensus Estimate for Skechers’ current financial year sales and EPS suggests growth of 12.2% and 20.6%, respectively, from the year-ago period. Skechers has a Value Score of A. Shares of SKX have rallied 23.5% in the past year.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Pfizer, which develops, manufactures, markets, distributes, and sells biopharmaceutical products, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 74.5%, on average.

The Zacks Consensus Estimate for Pfizer’s current financial year sales and EPS suggests growth of 7.7% and 56.5%, respectively, from the year-ago period. Pfizer has a Value Score of A. Shares of PFE have declined 9.4% in the past year.

General Motors, which designs, builds, and sells cars, trucks, crossovers, and automobile parts globally, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 17.5%, on average.

The Zacks Consensus Estimate for General Motors’ current financial year sales and EPS suggests growth of 4.8% and 34%, respectively, from the year-ago period. General Motors has a Value Score of A. Shares of GM have advanced 114.4% in the past year.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

Zacks Investment Research

Investors often turn to recommendations made by Wall Street analysts before making a Buy, Sell, or Hold decision about a stock. While media reports about rating changes by these brokerage-firm employed (or sell-side) analysts often affect a stock's price, do they really matter?

Before we discuss the reliability of brokerage recommendations and how to use them to your advantage, let's see what these Wall Street heavyweights think about Skechers (SKX).

Skechers currently has an average brokerage recommendation (ABR) of 1.09, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 11 brokerage firms. An ABR of 1.09 approximates between Strong Buy and Buy.

Of the 11 recommendations that derive the current ABR, 10 are Strong Buy and one is Buy. Strong Buy and Buy respectively account for 90.9% and 9.1% of all recommendations.

Brokerage Recommendation Trends for SKX

While the ABR calls for buying Skechers, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.

Are you wondering why? The vested interest of brokerage firms in a stock they cover often results in a strong positive bias of their analysts in rating it. Our research shows that for every "Strong Sell" recommendation, brokerage firms assign five "Strong Buy" recommendations.

In other words, their interests aren't always aligned with retail investors, rarely indicating where the price of a stock could actually be heading. Therefore, the best use of this information could be validating your own research or an indicator that has proven to be highly successful in predicting a stock's price movement.

Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is an effective indicator of a stock's price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.

Zacks Rank Should Not Be Confused With ABR

In spite of the fact that Zacks Rank and ABR both appear on a scale from 1 to 5, they are two completely different measures.

The ABR is calculated solely based on brokerage recommendations and is typically displayed with decimals (example: 1.28). In contrast, the Zacks Rank is a quantitative model allowing investors to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.

Analysts employed by brokerage firms have been and continue to be overly optimistic with their recommendations. Since the ratings issued by these analysts are more favorable than their research would support because of the vested interest of their employers, they mislead investors far more often than they guide.

On the other hand, earnings estimate revisions are at the core of the Zacks Rank. And empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

Furthermore, the different grades of the Zacks Rank are applied proportionately across all stocks for which brokerage analysts provide earnings estimates for the current year. In other words, at all times, this tool maintains a balance among the five ranks it assigns.

There is also a key difference between the ABR and Zacks Rank when it comes to freshness. When you look at the ABR, it may not be up-to-date. Nonetheless, since brokerage analysts constantly revise their earnings estimates to reflect changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in predicting future stock prices.

Should You Invest in SKX?

Looking at the earnings estimate revisions for Skechers, the Zacks Consensus Estimate for the current year has increased 1.9% over the past month to $4.21.

Analysts' growing optimism over the company's earnings prospects, as indicated by strong agreement among them in revising EPS estimates higher, could be a legitimate reason for the stock to soar in the near term.

The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #2 (Buy) for Skechers. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here

Therefore, the Buy-equivalent ABR for Skechers may serve as a useful guide for investors.

Zacks Investment Research

Skechers U.S.A., Inc. SKX shares have surged 26% over the past year, significantly outperforming the Zacks Shoes and Retail Apparel industry’s decline of 11.6%. The company responds to shifting consumer preferences by investing in omnichannel capabilities and infrastructure, and expanding its global market reach, leading to substantial growth in both its wholesale and direct-to-consumer (DTC) segments.

This approach, along with SKX’s commitment to innovation in product development and a keen focus on international market expansion, has helped it outperform the broader Consumer Discretionary sector’s growth of 19.5% in the past year. Closing at $62.29 on Friday, Sketchers’ stock is currently trading 17% below its 52-week high of $75.09 attained on June 12, 2024.

From a valuation perspective, Skechers’ shares present an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-earnings ratio of 13.09, below the five-year median of 15.37 and the industry’s average of 25.31, the stock offers compelling value for investors seeking exposure to the sector. Additionally, SKX’s current Value Score of A reinforces its attractiveness.

Skechers’ Multi-Brand Strategy Drives Growth

Skechers continues to strengthen its portfolio with a diverse range of fashion, athletic, non-athletic and work footwear, all offered at competitive prices. The company’s multi-brand strategy allows it to introduce new products without affecting its existing brands while expanding its reach to a broader consumer base.

The company is also investing in its global infrastructure, focusing on retail stores, e-commerce platforms and distribution centers. These efforts are aimed at enhancing omnichannel capabilities and growing the DTC business. Skechers has emphasized creating a seamless shopping experience for customers, integrating physical stores with digital platforms and improving loyalty programs.

Skechers’ wholesale segment has shown strong growth, driven by strategic investments in logistics and retailer relationships. In the third quarter of 2024, wholesale sales rose 20.6%, reaching $1.42 billion. This was driven by a 26% increase in domestic sales and an 18% rise internationally. Notable growth was seen in the EMEA region, with a 30.9% year-over-year increase.

The DTC segment also performed well in the third quarter, with sales rising 9.6% to $931.7 million. International DTC sales increased 14.4%, with significant growth of 28% in the EMEA region and a 3.7% rise in domestic sales.

Skechers' strong consumer appeal, particularly for its comfort technology, is reflected in its robust performance across both brick-and-mortar stores and online channels. The company's international business has also been a key driver of growth, with international sales up 16.4% year over year, accounting for 61% of its total sales, underlining the significance of its global footprint.

SKX Raises 2024 Outlook, Targets $10B Sales by 2026

Skechers raised its fiscal 2024 outlook, projecting sales between $8.93 billion and $8.98 billion compared with the previously estimated $8.88-$8.98 billion. This represents growth from $8 billion reported in fiscal 2023. The company has also increased its earnings per share (EPS) forecast to $4.20 and $4.25 from the previously stated $4.08-$4.18, suggesting solid growth from the $3.49 EPS in the prior year.

Skechers is set to invest $375-$400 million in capital expenditure to support key strategic initiatives, such as store openings, omnichannel expansion and improving its distribution infrastructure. These investments align with its goal of reaching $10 billion in annual sales by 2026.

Estimate Revision Favoring Skechers Stock

Analysts have responded positively to Skecher’s prospects, reflected in upward revisions in the Zacks Consensus Estimate for EPS. In the past 30 days, analysts have increased their estimates for the current financial year by 7 cents. The consensus estimate for earnings is pegged at $4.21 per share.

The consensus estimate for the next financial year has also been raised 4 cents to $4.85 per share. The Zacks Consensus Estimate for the current and next year’s sales is pegged at $8.97 billion and $9.82 billion, indicating year-over-year growth of 12.2% and 9.4%, respectively.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Conclusion

Investors can consider betting on Skechers stock due to its strategic alignment with evolving consumer demands and robust growth across multiple channels. The company’s omnichannel and international expansion, coupled with its diverse product line-up, has driven substantial growth in both wholesale and direct-to-consumer segments.

Skechers’ multi-brand strategy, which includes a strong focus on comfort technology, broadens its consumer appeal while minimizing overlap between brands, helping it capture a wide market share. Valuation-wise, SKX offers an attractive entry point, with shares trading at a discount compared to the industry. Upward revisions in earnings estimates further reinforce its growth potential, making it an appealing choice for investors seeking stability and expansion within the footwear industry. The company currently has a Zacks Rank #2 (Buy).

Other Key Picks

Some other top-ranked stocks are Gildan Activewear Inc. GIL, Abercrombie & Fitch Co. ANF and Steven Madden, Ltd. SHOO.

Gildan is a manufacturer and marketer of premium quality branded basic activewear for sale principally in the wholesale imprinted activewear segment of the North American apparel market. It currently sports a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The Zacks Consensus Estimate for Gildan’s current financial year earnings and sales indicates growth of 15.6% and 1.5%, respectively, from the 2023’s reported figures. GIL has a trailing four-quarter average earnings surprise of 5.4%.

Abercrombie is a specialty retailer of premium, high-quality casual apparel. It has a Zacks Rank #2 at present. ANF delivered a 16.8% earnings surprise in the last reported quarter.

The consensus estimate for Abercrombie’s fiscal 2025 earnings and sales indicates growth of 63.4% and 13%, respectively, from the fiscal 2024 reported levels. ANF has a trailing four-quarter average earnings surprise of 28%.

Steven Madden designs, sources, markets and sells fashion-forward name-brand and private-label footwear. It currently has a Zacks Rank of 2.

The Zacks Consensus Estimate for Steven Madden’s 2024 earnings and sales indicates growth of 8.2% and 12.7%, respectively, from the year-ago actuals. SHOO has a trailing four-quarter average earnings surprise of 9.8%.

Zacks Investment Research