Compare Stocks: Fossil vs. Deckers Outdoors

By Jim Fink • June 25, 2012 • Stocks to Watch

In one of my recent stock screens, I came across two consumer fashion stocks that look cheap after huge price declines but still generate the significant profitability required by super investors Warren Buffett and Chuck Akre. The two stocks are:

Deckers Outdoor (NasdaqGS: DECK) – maker of Ugg boots
Fossil (NasdaqGS: FOSL) – recently featured in my article on 3 Stock Plungers.

Although both stocks may prove to be good long-term investments, I wondered which was the better buy right now? Fortunately, there are a number of free websites that allow you to compare stocks head-to-head based on several different criteria:

Nasdaq.com
Morningtar.com (free registration required)
Smartmoney.com

Starting with Nasdaq’s stock comparison tool, below is a list of criteria and how Deckers and Fossil compare:

Criterion	Deckers Outdoor	Fossil	Advantage
Beta	1.11	1.70	Deckers. Low beta stocks outperform.
Short Interest as Percent of Shares Outstanding	23%	3%	Fossil. Short sellers are smart.
Short Interest Days to Cover	6.5%	1.2%	Deckers. Strong candidate for a short squeeze.
P/E Ratio	9.4	16.5	Deckers. Cheaper is better, especially if under the S&P 500 average P/E ratio of 14, assuming earnings growth is healthy.
Estimated Annual Earnings Growth Next Five Years	18.1%	19.8%	Fossil, but anything over 10% is excellent.
PEG Ratio	0.55	0.72	Deckers, but anything under 1.0 is excellent.
Enterprise Value-to-EBITDA Ratio	5.01	8.76	Deckers. Lower is better. Academic studies conclude that EV-to-EBITDA is better than P/E ratio in measuring future stock performance.
Dividend Yield	0.0	0.0	Both bad because dividend stocks are the best stocks.
Price Decline from 52-Week High	-63%	-47%	Unclear. Cheaper is better, but could severer price decline hint at unknown problems?

Moving on to the Morningstar’s stock comparison tool:

Criterion	Deckers Outdoor	Fossil	Advantage
Financial Grade	B	C	Deckers, which has zero debt.
Profitability Grade	A	C	Deckers. Both companies currently have return on equity above 25%, but Morningstar’s rating also looks at consistency and improving trend, not just the current number. Deckers has had 20%-plus ROE for the last five years whereas Fossil has only done so for two years.
Growth Grade	B	B	None

Lastly, Smartmoney.com’s stock comparison tool has a few data points not found in the other tools:

Criterion	Deckers Outdoor	Fossil	Advantage
5-Year Historical Annualized Sales Growth	41.35%	15.83%	Deckers, but such high growth cannot possibly be sustainable over the long term.
5-Year Historical Annualized Earnings Growth	40.11%	32.58%	Deckers, but both strong. Again, not sustainable over the long term. Peter Lynch prefers “moderately fast growers” in the 20-25% range.
Latest quarter earnings per share growth	-59.18%	8.14%	Fossil. Is negative year-over-year growth for Deckers a red flag?
On Balance Volume	155	95	Deckers. Fossil’s stock suffered a high-volume decline on May 8^th that suggests investors are spooked. In contrast, Deckers’ decline has been more stable without such a one-day shock.

Using stock comparison tools can help an investor choose between two or more potential stock investments. In the case of Deckers Outdoor and Fossil, the decision is not easy because they both have similar profitability and valuation multiples. If I had to choose which one I like more, my selection is Fossil because its upcoming quarterly earnings are expected to remain positive — unlike Deckers — and it doesn’t suffer from a high short-interest ratio and the wrath of smart short sellers.