ODd how a higher interest rate would be considered our friend now but one has to realize how despite Deckers earning 89M in cash in 2012, the stock over the last 22 months went from its all-time high to 5 year lows in 10 months and erasing 75.6% of value; yet the company was still making plenty of cash.
So what happened? Well, in hindsight one can now see that sheepskin costs rose for two consecutive years, totaling an 80% increase and having a 40% hit to our bottom line. So then why the 75.6% drop? Well, interest rates on the ten year got as low as 1.5%, so not only did an investor have to consider the fact that sheepskin costs could rise, but now one can just invest in a walmart, mcdonalds and coke and get more than double the return of the ten year in dividends from those bellweather companies that seem to be recession proof and/or have complete international exposure.
So Deckers and its "risks" becomes less attractive no matter how much cash it is earnings. But NOW the ten year is up almost 80% off the lows of 1.5% set about a year ago and now a lot of those "bellweather" companies like coke, mcdonalds, etc have dividends that are no longer as attractive considering the ten year and those companies values are out of proportion to how much C A S H they actually earn.
So now money is on the prowl for the companies that make more return on value in cash(cash/present value) and they re basically going to be looking for those companies like Deckers whose cash production when divided by the business's value(89.5M/1.94B=5%) offer a better return than the ten year by almost 80%.
They will then do further research and see companies like DECKERS will earn more cash this coming year in all likelihood due to raised guidance and 11% lower sheepskin costs.
They will then due EVEN FURTHER research and notice that deckers is GROWING its store count from 70 in 2012 to 200+ by 2016, growth of 140%.
They will then do MORE research and realize management has created a product