This Fast-Growing Stock-Split Stock Just Trounced Estimates Again. Is It Too Late to Buy?

Stock splits don't fundamentally change a stock or its valuation. They just divide the pie into more pieces.

However, stock splits are still correlated with outperformance, according to a study from Bank of America. There's no simple explanation for that relationship, but companies tend to split their shares when they're performing well, and that momentum seems to continue after the stock split. After all, management teams choose when to split their shares. If they weren't confident in continued growth, they'd be less likely to execute a split, as they'd be wary of the stock falling post-split.

Deckers (NYSE: DECK) is one of the latest companies to offer a stock split. The footwear specialist split its shares 6-for-1 on Sept. 17.

Now, the Hoka parent has released its first earnings report since then, and investors liked what they saw, as the stock jumped 12% after hours. Let's take a look at what went right for Deckers in the fiscal second quarter.

Image source: Getty Images.

Deckers races ahead

Deckers delivered another impressive quarter of growth with total revenue up 20.1% to $1.31 billion, which easily beat estimates at $1.2 billion.

Growth was balanced across both the direct-to-consumer and wholesale channels, with DTC revenue up 19.9% to $397.7 million. Wholesale revenue jumped 20.2% to $913.7 million.

The Hoka brand remained on fire with sales up 34.7% to $570.9 million, an acceleration from the previous quarter. The company also delivered strong growth in international markets, where revenue was up 33% to $457.4 million, showing the company has room to expand abroad. Ugg, which is still its top-selling brand, posted revenue of $689.9 million, up 13% from the quarter a year ago.

Further down the income statement, Deckers also impressed. Gross margin jumped 250 basis points to 55.9%, showing the company controlling costs and avoiding markdowns, which led operating income to jump 36% to $305.1 million.

On the bottom line, earnings per share rose from $1.14 to $1.59, which was well ahead of the consensus at $1.24.

If there was a blemish in the report, it was the company's guidance. Though it raised its revenue forecast, it's still only calling for 12% growth to $4.8 billion, implying a sharp slowdown in the second half of the year, and below the consensus at $4.82 billion. On the bottom line, it raised its forecast to $5.15 to $5.25, which compared to estimates at $5.35.

However, the company has a history of offering conservative guidance, so investors shouldn't be too alarmed by the forecast.

Is Deckers a buy?

Hoka has gotten much of the attention from investors in recent years, and that's deserved as the running-shoe brand has been the growth engine for the company. But the solid performance from Ugg is a pleasant surprise and bodes well heading into the winter, and the key holiday season.

Deckers stock is now up more than 500% over the last five years, and the company has two category leaders in Hoka and Ugg. While Hoka has been the story for investors here, it still makes up less than half of the company's sales.

Deckers now trades at a price-to-earnings ratio of 32 based on its earnings forecast for this year, but I suspect that the company will easily beat that guidance. It calls for earnings per share to grow just 7% at the midpoint on a forecast of 12% growth in revenue.

The holiday season will be key for the company, and consumer sentiment seems to be improving heading into the peak selling season. Beyond that, falling interest rates should also encourage consumer spending.

The footwear stock is still a buy.

Should you invest $1,000 in Deckers Outdoor right now?

Before you buy stock in Deckers Outdoor, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Deckers Outdoor wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $867,372!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of October 28, 2024

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.