Buy, Sell, or Hold: Deckers Outdoor

Specialty footwear manufacturer Deckers Outdoor (NAS: DECK) has had a volatile year. Shares were up big in February but have fallen since and are now just a hair above their 52-week low. Our online stock-picking CAPS community has given the company a timid three stars out of five. Read on to decide how you would rate the company behind the famous Ugg sheepskin boots.

A quick look at this company's financials makes it look like a promising prospect. It boasts a high net income margin of 13.2% and has zero debt. It has also been growing rapidly -- at least a 10% increase in sales every year for 14 years -- and most recently generated a 21% year-over-year increase in first-quarter revenue.

Investors who were lucky enough to get in 10 years ago would have an amazing 30-bagger on their hands.

Deckers is extremely reliant with its Ugg brand, which accounted for 87.3% of the company's overall sales in 2011. Considering it has five other brands in its portfolio, that's not a good sign for investors. It gives the company little flexibility, particularly while the price of sheepskin has been rising.

Some might argue that competitor Nike (NYS: NKE) runs a similar operation, with the namesake brand making up 86.7% of 2011's sales. But investors should keep in mind that the Nike brand is much more diverse, offering everything from shoes, clothing, and accessories all the way to sports equipment; it also appeals to a much broader audience.

Deckers' strategy of producing tailored brands for niche markets is fine, but revenues coming in need to be more balanced among the portfolio to safeguard against any turbulence in those smaller markets. Take, for instance, 2012's first-quarter earnings: The unusually warm season hurt Ugg sales, causing the company to miss guidance and the stock price to plummet 25% in one day.

Deckers didn't acquire the Sanuk brand until halfway through 2011, but it still managed to account for nearly 2% of the company's total annual sales -- more than the MOZO, Anhu, and TSUBO brands combined. Sanuk is pretty popular in its market, and if Deckers can successfully market the brand the way it did for Ugg, then it may be able to find a better balance in its portfolio, which would be great news for investors.

If you can tolerate high volatility and risk in your portfolio, then it might be worth holding on to Deckers. But if you're like most investors -- including yours truly -- then steer clear. For the investor who doesn't already have a position, I wouldn't advise picking up shares now. A clean balance sheet isn't worth much if a company can't consistently execute for its investors.

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