Skechers shares could drop up to 50% from here: short seller warns

Skechers USA Inc (NYSE: SKX) is already down nearly 30% from its year-to-date high, but Spruce Point Capital Management warns the stock could continue to dive going forward.

Skechers stock could drop to $18.60 per share

The shoe company is currently struggling with “excess inventory” which has caused its stock price to drop by 30% to 50%, mostly recently in 2018 and before that in 2015. Based on this historical index, the short seller therefore sees a downside. at $18.60 per Skechers share.

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The “Investment Opinion” also called China a major headwind. An estimated 25% annualized decline in that market’s revenue in the second quarter, Spruce Point noted, could also weigh on “SKX.”

The stock is trading at a 12-month price-to-earnings multiple of 7.70, which Spruce Point predicts will contract further as growth continues to moderate.

In recent years, Skechers has focused on expanding its reach outside of the United States, generating 20% ​​of its 2021 revenue from China. Absent the China story, we think Skechers is just a moderate growth company.

Skechers expected to trade at a discount to its peers

Skechers is a bit too weak to compete meaningfully with Nike, Puma and Adidas, the short seller added. He therefore expects the NYSE-listed company to trade at a discount to its industry peers.

Other reasons cited for the “strong sell” view include weak strength in Asia Pacific on “limited brand appeal” and poor investor disclosure. The report reads:

Skechers has long embodied many of the stereotypical attributes of a founder-led company, including nepotism, personal enrichment, endemic related-party transactions and an unwillingness to adopt best practices in corporate governance.

Spruce Point also expects the company’s free cash flow to remain below average. Skechers will likely release its second quarter financial results on July 26e.

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