Just A Matter Of Time Before Skechers Stock Recovers To $38?

SKX: Skechers U.S.A. logo
SKX
Skechers U.S.A.

Based on a comparison of Skechers’ stock (NYSE: SKX), which primarily sells lifestyle and performance footwear products, trajectory over recent months with that around the 2008 recession, we believe that the stock can potentially gain 20%, to reach almost $38 once fears surrounding the coronavirus outbreak are put to rest. A detailed comparison of Skechers’ stock performance vis-à-vis the S&P 500 is available in our interactive dashboard analysis, How Did Skechers Stock Peformance Compare vs. The S&P 500 In 2008 And Now?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. Skechers stock lost 46% of its value (vs. about a 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 52% over recent weeks (vs. about 37% gain in the S&P 500) to its current level around $31. Despite these gains, the stock is still down 27% since the beginning of the year.

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The Sharp Movements In Skechers’ Stock Were Triggered By Several Underlying Factors

The decline in Skechers’ stock is understandable, considering the impact that the outbreak and a broader economic slowdown are having on consumer spending and on the global apparel industry in particular. However, the company’s first-quarter results (ending March) were resilient as revenues remained stable despite the outbreak. Nevertheless, the lockdown in most countries was imposed toward the end of March and the impact of Covid-19 will be evident in the company’s Q2 2020 results. Moreover, dwindling consumer demand reduced discretionary spending, and stay-at-home orders resulting in stores remaining closed continue to take their toll on the company’s stock. Additionally, the ongoing civil unrest in the USA, which is Skechers’ largest revenue driver, has also adversely impacted the demand for Skechers’ products. However, with things returning to normal and store re-openings, Skechers stock has seen an upward movement of late.

But How Does The Movement This Time Around Compare With The Trend During The 2008 Downturn?

  • We see Skechers stock declined from levels of around $8 in October 2007 (the pre-crisis peak) to levels of around $2 in March 2009 (as the markets bottomed out) – implying the company’s stock lost as much as 72% from its approximate pre-crisis peak -higher than the broader S&P, which fell by about 51%.
  • However, Skechers stock recovered strongly post the 2008 crisis to about $10 in early 2010 – rising by 360% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period

Will Skechers’ Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that Skechers stock fell 46% from the market peak on February 19 to the low on March 23 compared to the 72% decline during the 2008 recession, we believe it can potentially recover by 20% to levels of $38 once economic conditions begin to show signs of improvement. This marks a full recovery to the $38-level the stock was at before the coronavirus outbreak gained global momentum.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture and complements our analyses of Coronavirus impact on a diverse set of Skechers’ multinational peers – from impact of Coronavirus on L Brands to impact on competitor Columbia Sportswear and Gap stock. The complete set of coronavirus impact and timing analyses is available here.

While Skechers looks like a strong investment option in the long run, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising

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