Skechers Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of footwear maker Skechers U.S.A. (NYS: SKX) surged 19% in intraday trading Thursday after a Wall Street analyst upgraded the stock.

So what: Despite posting a wider-than-expected second-quarter loss, Skechers' rating was raised to "buy" from "hold" at BB&T Capital Markets on "greater earnings power." Skechers shares have been pummeled over the past year on worries that it was being far too dependent on its poorly performing toning shoes, but after this past quarter's 2 million pair inventory clearance of "Shape-ups" and positive results from new products, investors are starting to regain some hope.

Now what: Don't let today's big rally keep you from looking into the stock. Even with the surge, Skechers is still down more than 50% over the past year and continues to trade at a forward P/E discount to other shoes stocks like Nike (NYS: NKE) and Deckers Outdoor (NAS: DECK) . With gross margins expected to go up and operating expenses to go down in upcoming quarters, that valuation gap might close faster than you think.

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At the time thisarticle was published Fool contributorBrian Pacamparaowns no position in any of the companies mentioned. The Fool owns shares of Skechers. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Nike. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool'sdisclosure policyalways gets a perfect score.

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