Should You Invest $1,000 in Deckers Outdoor Today?

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2 days ago

Its core UGG and HOKA brands continue to grow, but momentum has slowed.
The industry faces a challenging environment, but Deckers is well-prepared financially.
The shoe company's stock is a prime rebound candidate if sales reaccelerate over time.
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Shares of Deckers Outdoor (NYSE: DECK) continue to tumble. The parent company of footwear brands including UGG, HOKA, Teva, and Ahnu has fallen roughly 50% since peaking early this year at over $200 per share.
It never feels good to buy a stock that continues to go down. It's only human to want to buy winners. The reality is that all companies face adversity at times; the trick is knowing when the company is working through minor bumps or if there are serious problems underneath the surface.
So, I took a peek into the business to see which side of the coin Deckers Outdoor lands on. Here is whether you should invest $1,000 into Deckers stock today.
Deckers Outdoor's two primary brands are UGG, a California lifestyle brand most known for its boots, and HOKA, a premium running shoe brand. Together, UGG and HOKA combined for $4.76 billion of the company's $4.99 billion total sales in fiscal 2025.
The good news is that both brands continue to perform well. Sales of UGG and HOKA increased 13.1% and 23.6%, respectively, in fiscal 2025. But Q4 sales growth was much lower, just 3.6% for UGG and 10% for HOKA in Q4. In other words, sales momentum has dramatically slowed.
Slowing growth isn't ideal, but there is a fair amount of evidence that Deckers is dealing with industrywide headwinds rather than internal issues. Uncertainty regarding tariffs has complicated the supply chain for footwear companies, which primarily manufacture outside of the United States. Deckers manufactures most of its products in Vietnam.
Management estimated that the company's cost of goods sold may increase by $150 million in fiscal 2026 due to tariffs, and is unsure how that may impact consumer demand. The company declined to offer financial guidance for the upcoming year.
Shoes are a discretionary spend for most consumers, so economic uncertainty can easily disrupt business. However, it could be a buying opportunity for the stock if these challenges are temporary and the brands themselves remain strong with buyers.
Deckers is holding up far better in this operating environment than Nike, which reported a 9% year-over-year sales decline in its most recent quarter. I think it's a positive sign that HOKA is Deckers Outdoor's fastest-growing brand, while Nike, the industry leader, is struggling.
If you zoom out, the HOKA brand's recent growth is no fluke. The brand's sales have skyrocketed from just $352 million in fiscal 2020.
Deckers is also well-equipped to navigate a challenging business climate, with a debt-free balance sheet and nearly $1.9 billion in cash on hand. Management re-upped the company's share repurchase program in Q4 as well, bringing its authorized buybacks to $2.5 billion, or 15% of its current market capitalization. That's going to do wonders in establishing a solid floor for earnings-per-share growth.
Whether it's sneakers or apparel, fashion brands are a popularity contest. The risk in these stocks is that the brands lose their appeal. Fortunately, that doesn't seem to be the case here.
Things could always change in the future, but Deckers Outdoor seems poised for a bounce-back once the economic landscape improves. Consumer sentiment has taken a clear hit amid the uncertainty in recent months.
The negativity is weighing on shoppers, and the stock's steep decline could be as simple as the market lowering growth expectations. Earlier this year, analysts were anticipating approximately 15% annualized long-term earnings growth from Deckers. Those estimates have dropped to just 6.4% today.
Deckers traded at a price-to-earnings ratio of 37 in January, but that has plunged to just 17. Even modest sales growth coupled with those massive buybacks should generate the mid-single-digit earnings growth analysts now expect, and there could be significant upside potential if growth eventually reaccelerates and drives that valuation higher again.
The stock can always go lower, but the long-term risk-to-reward dynamic looks attractive here, making Deckers Outdoor a fine buy-and-hold candidate to park $1,000 in.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Deckers Outdoor and Nike. The Motley Fool has a disclosure policy.
Should You Invest $1,000 in Deckers Outdoor Today? was originally published by The Motley Fool