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UGGs (Fur trimmed boots. Need we say more?) (JENNIFER GRAYLOCK/JENNIFER GRAYLOCK/AP)
UGGs (Fur trimmed boots. Need we say more?) (JENNIFER GRAYLOCK/JENNIFER GRAYLOCK/AP)


The bull market in ugly shoes Add to ...

While fashion can be hard to predict, CNNMoney.com argues that Deckers Outdoor Corp. is far from experiencing the same kind of consumer backlash that once plagued Crocs Inc. .

For instance, the company's fundamentals point toward an average 30 per cent year-over-year increase in earnings for the past five years, the author states. What's more, analysts are predicting another rise of 24 per cent annually "over the next few years."

Outside the fundamental realm, analysts are backing the shares, while short sellers are backing away. For instance, Sam Poser, an analyst with Sterne, Agee & Leach in New York, told CNNMoney that investors should "no longer dismiss Deckers and the UGG brand as mere footwear fashion fads." What's more, the company's short-to-float ratio has fallen from between 15 per cent to 20 per cent a few years ago to about 8 per cent currently.

The article concludes by stating that while many still believe that "UGG is a fashion faux pas" and that the shoes are "unattractive footwear," there is nothing unattractive about DECK shares.

Contrarian Takeaway:

While it's hard to argue with CNNMoney.com's fundamental analysis of DECK, the article's sentiment indicators could use a bit more perspective. For instance, short interest currently accounts for about 8 per cent of the stock's total float, but only following a rise of nearly 12 per cent in the number of shorted shares during the most recent reporting period. What's more, while there are bullish analysts in DECK's corner, Zacks reports that seven of the 14 brokerage firms following the stock still rate it a "Hold."

As contrarian investors know, rising pessimism on an outperforming stock is a recipe for additional gains. For instance, the stock's ratings backdrop leaves ample room for additional upgrades or initiations, such as the recent "Buy" rating and $75 price target from Jefferies. Furthermore, as the stock continues to rally, short sellers could be forced to reconsider their bearish bets, and an 8 per cent short-to-float ratio could provide more than enough fuel for a potential short-covering rally.

Finally, it should be noted that DECK recently rallied to a fresh all-time high. The stock has soared more than 100 per cent since the start of 2010, and has outperformed the S&P 500 Index by more than 30 per cent, on a relative-strength basis, during the past 60 trading days. Short-term traders may want to be wary of a consolidation period following recent gains, as DECK waits for support in the form of its 10-day and 20-day moving averages to catch up.

Joseph Hargett writes for Schaeffer's Investment Research

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  • Crocs Inc
  • Updated August 21 4:00 PM EDT. Delayed by at least 15 minutes.

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