MAnagement has stated that they forsee the ability to have mid double digit profit margins a few years out as a result clearly of UGG PURE and its eventually replacing more than 50% of the inventory.
So let's play worst case scenario.
Worst case scenario is instead of mid double digit profit margins, we somehow get low double digit profit margins. Even a 12% profit margin is 50% more than CURRENT profit margins and would raise our earnings excluding ANY growth by 50%. That gives us a foward PE of JUST 13.
But Deckers IS growing their store count tremendously as well as stating that they see lower price points for certain products which should drive growth.
How does the current price reflect 1)the growth that should come which means the stock warrants a higher PE and 2) how does it take into account the amount of cash this company is going to make over the next 3 years and beyond?
So, in summary, a higher PE is warranted ala a company like Under Armour which is being priced for growth and has been for the last 5 years trading at a PE of over 30. Now trading at a pe of nearly 60.
Deckers is not growing as fast but it has the ability to double its cash flow from today and 1000 days from now.
None of this includes the effect of sheepskin going lower for 2014 which we will find out from management at the next earnings report in 2 months which will just add more money to the bottom line for us if it goes lower.
If it goes up, it will be a hit but UGG PURE will come to the rescue over time. So not much to worry about there and really in 2 months, good news about sheepskin would just add more cash to estimates.