I am rounding up an interesting week of options trading activities as I explore the options of Skechers USA Inc. (NYSE:SKX). Skechers with its market capitalization of 2.78B designs and markets Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under several lines. In addition to Skechers-branded lines, the Company also offers a branded junior line.
How Skechers Caught My Attention
Skechers caught my attention today after I observed that the stock made a new 52-week high yesterday to trade at $55.81 per share. The stock is already above its 20, 50, and 200-day moving averages, it has made 14 new highs in the last one month and the stock has gained 97.14% in the last one year as the chart below shows.
You will observe that the stock has been obstinately trading upwards in the last one year and thus I had to dig into the company fundamentals to find the reasons behind the bullishness.
Reasons behind the Bullish Action in SKX
- Exceptional Financial Performance
Shares of Skechers started another bullish ascent after the company delivered excellent second quarter earnings to build on the wonderful earnings that was reported in the first quarter. In the second quarter, Skechers posted earnings of $0.68 per share to beat the consensus analysts’ estimate of $0.41 per share. The earnings of $0.68 per share also marks a whopping 385.7% growth over earnings of $0.14 that was reported in the same quarter last year.
Skechers announced revenues of $587.1M to mark a 37.1% increase in revenues from the same quarter last year and to beat the consensus analysts’ estimate of $505M. Gross profit surged by 38.2% to $269.4M while operating income of $53.8M was three times more than the operating income from the same quarter last year.
- Healthy Balance Sheet
Skechers shows that its management is on top of the company’s financial management with a healthy balance sheet. The company ended the second quarter with cash and cash equivalents of $414.8M. In comparison, Skechers reported long-term debt-level of $110.3M.
- Diversification across its Portfolio of Brand
One of the bane to the growth of retail companies operating in the fashion industry is that consumer tastes and preferences is very fickle in nature. Hence, a fashion retail company that has been growing nicely can suddenly record significant losses as consumer tastes changes. However, Skechers has a diversified portfolio of brands that ensures that the company’s revenue does not come majorly from any one style or brand.
For instance, Skechers offers athletic, fashion and even work footwear at great prices that keep consumers locked to its stores. In addition, the wide range of brands makes it easy for the company to target consumers across different demographics. In addition, the company seeks to expand its customer-base with bold expansion plans to increase its store count to 1,050 stores by the end of this year.
How to Trade SKX Options
The general investing community is cautious around Skechers and the low expectation is one of the reasons the stock has been outperforming in recent times. I have a $60 price target on the stock considering the fact that it might pullback before rising again based a RSI of 73, which suggests that the stock is now overbought. I recommend the SKX Jan 2015 50.000 call (SKX150117C00050000) at an asking price of $8.
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