Worst-Ranked S&P 500 Stock of the Year: Reasons Why It Might Be a Notable Buying Opportunity
Deckers Outdoor Corporation (DECK), the renowned footwear company behind brands like Hoka and Ugg, has experienced a significant stock decline in 2021. The primary reasons for this downturn include slowing growth after years of rapid expansion and the impact of tariff-related headwinds that increased costs.
In the early part of the year, Deckers reported financial results showing slower revenue growth, causing concerns among investors. The tariffs were expected to increase the company's cost of goods sold by approximately $150-185 million, putting pressure on margins and leading to fears about the ability to pass on these costs without reducing demand.
Other factors contributing to the decline include market saturation and intense competition, particularly for the fast-growing Hoka brand. The brand, which saw its first miss on revenue estimates and declining direct-to-consumer sales in the U.S., has raised concerns about its growth sustainability and the impact of expanding wholesale distribution on its premium positioning and margins.
However, Deckers' first-quarter 2025 results showed a strong rebound, with better-than-expected revenue growth (+17%) and earnings. This resurgence was driven largely by international markets and solid performance from both Hoka and Ugg brands. As a result, the stock has seen some recovery, although it is still down about 48% from its peak earlier in the year.
This mixed performance has left investors wondering if Deckers Outdoor is a good buying opportunity. The stock's significant decline, coupled with a historically strong performance and a recent earnings beat, suggests that it could be an attractive opportunity for those who believe the company can manage tariff pressures and sustain growth in Hoka and Ugg internationally.
However, it's essential to exercise caution. Tariffs continue to pose a sizable cost risk, and it's uncertain if pricing strategies will fully offset these. Economic pressures and softer consumer sentiment could limit the company's ability to raise prices without hurting demand. Competitive dynamics, particularly in the premium running shoe segment, could also limit growth.
Investors considering DECK should weigh these growth headwinds against the company's demonstrated brand management and recent international growth surge, making it potentially attractive for those with a medium to long-term investment horizon. However, they should also pay attention to macroeconomic and tariff risks that could impact margins and growth.
In summary, Deckers Outdoor's 2021 stock decline was largely due to slowing growth and tariffs, and while its recent results show promise, the stock remains exposed to external risks. As such, it could be a cautiously interesting buy depending on risk tolerance.
Additional notes:
- Deckers Outdoor's two core brands, Hoka and Ugg, have long track records of growth.
- The company repurchased $85 million in the first quarter through May 9.
- Deckers Outdoor has increased its share repurchase authorization to $2.5 billion, representing 16% of its market cap.
- Deckers Outdoor is the maker of Hoka running shoes and Ugg boots.
- For the first quarter, Deckers Outdoor expects revenue to grow by 9% at the midpoint.
- In fiscal 2025, Deckers Outdoor repurchased $567 million worth of its stock.
- The S&P 500 is up 1.7% through June 17.
- Deckers Outdoor's revenue in its fiscal fourth quarter, ended March 31, rose by 6.5%.
- Ugg, another Deckers Outdoor brand, grew just 3.6% in the fourth quarter compared to 13% for the full year.
- Deckers Outdoor trades at a price-to-earnings valuation of 16, a substantial discount to the S&P 500.
- Growth at Hoka, a Deckers Outdoor brand, slowed from nearly 30% in the first three quarters of the year to just 10% in the fourth quarter.
- Deckers Outdoor expects its gross margin to decrease by 250 basis points.
- Deckers Outdoor plans to grow Hoka sales by at least low double digits and Ugg sales by at least mid-single digits.
- Deckers Outdoor did not provide full-year guidance due to macroeconomic uncertainty related to tariffs.
- Deckers Outdoor has no debt and $1.9 billion in cash.
- The decline in Deckers Outdoor Corporation's stock in 2021 was primarily influenced by slower growth and the impact of tariffs, which increased the company's costs.
- Investors are contemplating whether Deckers Outdoor is a worthy investment opportunity, considering the significant stock decline, but also taking into account the company's strong aforementioned brands, Hoka and Ugg.
- Deckers Outdoor's stock valuation currently stands at a price-to-earnings ratio of 16, offering a substantial discount compared to the S&P 500, and this, coupled with the promise shown in its recent results, could make it an attractive investment opportunity for those with a medium to long-term investment horizon, balanced against the ongoing tariff risks.
