Why You Should Buy Deckers For The Long Term

Deckers Outdoor Corp. (DECK) just reported a smallerthanexpected secondquarter loss, which sent its shares soaring within the afterhour market. You may be reading this article because you are a trader however i think that the shares of Deckers, at their current price, represent a long term investment opportunity.

First, Deckers has zero long-term debt. Substantial amount of long term debt could bring down a retailer company. Retailers that sell consumer discretionary items tend to fall prey to the ups and down of monetary cycles. Without substantial long term debt, a retail clients are in a stronger position than its competitors with many different debt to outlive a recession, as well as survive the mistakes it could make during its very own expansion.

Deckers debt/equity ratio is lower than a large amount of its competitors. For instance, Cheap UGG Boots includes a total debt/shareholder equity ratio of 3.5. Even better, Deckers don't have a lot of its very own stores and the CEO has indicated that it doesn't intend to convey more than 50 of their own stores. Additionally, it represents an advantage in terms of financial flexibility. A lot of retailers have tremendous amount of long-term lease payment obligations for his or her large numbers of stores, which place a huge recurring financial burdens on their own business. Circuit City was forced into bankruptcy primarily because of its store lease obligations.

Second, measured by price/sales ratio, price/EBITDA, P/E ratios, the common shares of Deckers are reasonably priced. For that full year 2012, it is expected to have net income of about $4.56 to $4.61 per share, which means a P/E ratio of roughly 11 even if the price reaches $50 per share. For a company that also grows its revenue at double digit percentages every year, that's an attractive valuation.

Third, as measured by return on equity, return on assets and net margin, the company is relatively well managed.

Fourth, the interests from the management team of Deckers are aligned with the ones from the public shareholders, as the insiders own about 6% of the common shares. The recent purchases by a number of insiders also reveal that the insiders are confident concerning the direction and the future of the organization.

However, a note of caution is due here. The price of a consumer discretionary stock tends to be very volatile. I would not be amazed when the stock price of Deckers goes through huge ups and downs in the future. If the stock price declines, you need to have the stomach to stick to the investment decision you make, and to do this, you need to have done your homework and also have conviction in your energy production decision.