Earnings

Critical Comparison: Steven Madden, Ltd. (SHOO) vs. Weyco Group, Inc. (WEYS)

Steven Madden, Ltd. (NASDAQ:SHOO) shares are down more than -3.75% this year and recently decreased -2.71% or -$1.25 to settle at $44.95. Weyco Group, Inc. (NASDAQ:WEYS), on the other hand, is up 1.65% year to date as of 02/02/2018. It currently trades at $30.21 and has returned -10.12% during the past week.

Steven Madden, Ltd. (NASDAQ:SHOO) and Weyco Group, Inc. (NASDAQ:WEYS) are the two most active stocks in the Textile – Apparel Footwear & Accessories industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect SHOO to grow earnings at a 9.00% annual rate over the next 5 years.



Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 9.3% for Weyco Group, Inc. (WEYS). SHOO’s ROI is 16.10% while WEYS has a ROI of 7.80%. The interpretation is that SHOO’s business generates a higher return on investment than WEYS’s.

Cash Flow 




If there’s one thing investors care more about than earnings, it’s cash flow. SHOO’s free cash flow (“FCF”) per share for the trailing twelve months was -0.32. Comparatively, WEYS’s free cash flow per share was -0.70. On a percent-of-sales basis, SHOO’s free cash flow was -1.35% while WEYS converted -0% of its revenues into cash flow. This means that, for a given level of sales, WEYS is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. SHOO has a current ratio of 3.10 compared to 6.20 for WEYS. This means that WEYS can more easily cover its most immediate liabilities over the next twelve months. SHOO’s debt-to-equity ratio is 0.00 versus a D/E of 0.02 for WEYS. WEYS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

SHOO trades at a forward P/E of 16.37, a P/B of 3.10, and a P/S of 1.80, compared to a P/B of 1.56, and a P/S of 1.11 for WEYS. SHOO is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. SHOO is currently priced at a -13.72% to its one-year price target of 52.10. Comparatively, WEYS is 16.19% relative to its price target of 26.00. This suggests that SHOO is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for SHOO and 3.00 for WEYS, which implies that analysts are more bullish on the outlook for WEYS.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. SHOO has a beta of 0.41 and WEYS’s beta is 0.74. SHOO’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. SHOO has a short ratio of 3.29 compared to a short interest of 4.81 for WEYS. This implies that the market is currently less bearish on the outlook for SHOO.

Summary

Steven Madden, Ltd. (NASDAQ:SHOO) beats Weyco Group, Inc. (NASDAQ:WEYS) on a total of 9 of the 14 factors compared between the two stocks. SHOO is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has lower financial risk. SHOO is more undervalued relative to its price target. Finally, SHOO has better sentiment signals based on short interest.

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