To The Moon

$Deckers Outdoor(DECK)$

Why Deckers and Why Now

Today we’re diving into Deckers Outdoor Corp, a stock I picked up early last week—before the new U.S. tariffs went into effect. I’ll give a bit of historical context around those political developments, and explain why I think Deckers is worth keeping on your radar.

Recent Price Action The stock took a decent hit after my purchase, but then rebounded with a 5% gain on Friday, which was a nice bounce. I’ll get into the details of that move in a minute—but first, let’s walk through the strategy and thought process that led me here.

My Deep Cyclical Strategy: The Starting Point As always, I start with historical earnings cyclicality. Deckers presents an interesting case. Typically, for my deep cyclical strategy, I look for companies that have seen earnings drop 50% or more during past downturns. On the surface, Deckers doesn’t quite meet that threshold—adjusted earnings declined about 32% at one point, and another 15% a few years later.

Looking Deeper at Basic Earnings But when we dig into basic earnings, the story gets more compelling. Back in 2014, earnings fell to zero—two straight years of negative growth. They rebounded slightly, then experienced another sharp drop, effectively a 100% drawdown in basic terms. So while adjusted metrics make the volatility look mild, the raw numbers reveal serious swings.

Understanding the Business and Brands Deckers is in the apparel and footwear space. According to ChatGPT’s summary, they own brands like UGG, Hoka, Teva, and Sanuk. Hoka’s been exploding in popularity lately. Teva sandals—my wife’s go-to. Sanuk has a cool, surf-inspired vibe. Personally, I’ve got flat feet, so I’m not a sandal guy—but overall, Deckers has done a great job building and scaling brands that resonate with consumers.

Cyclicality and the Nature of Apparel Like most companies in the apparel space, though, earnings are exposed to changing trends. Brands fall in and out of favor. It looks like Deckers made some smart long-term moves—maybe acquiring or investing in smaller brands—that dragged on earnings in the short term but paid off down the road.

Market Overreaction Signals Opportunity Here’s the key insight: even though the actual earnings drops don’t always look catastrophic on paper, the stock price tends to dramatically overreact. That 32% drop in adjusted earnings I mentioned? The stock plunged 75% during that same stretch.

Great Recession Case Study Same thing during the Great Recession—earnings were actually growing, but the stock still fell 75%. That tells me something critical: the market doesn’t price Deckers based on earnings. It traded at a P/E of 5 during the recession, and it still got clobbered. Investors saw it as “cheap” way too early, and it kept falling anyway.

Why P/E Ratios Don’t Work Here That’s why I don’t rely on P/E ratios when analyzing Deckers. The market simply doesn’t seem to care. So an earnings-based valuation model doesn’t give you much of an edge here.

Today’s Valuation Disconnect Fast forward to today—Deckers was recently trading at a P/E of 38, driven by years of impressive ~20% earnings growth. Now, the stock’s been sold off 50%, even though earnings are expected to grow another 13% this year—outpacing most of the S&P 500.

Investment Thesis Summary So what are we looking at?

• A business with a strong track record of brand development and execution

• A volatile earnings history, especially when you look past the adjusted figures

• And a market that consistently overreacts to downside risk

Why It Fits My Strategy That’s the kind of setup I look for with my deep cyclical strategy. The market is treating Deckers like it’s headed for disaster—even though current fundamentals don’t support that view. And if history is any guide, sentiment will eventually swing the other way.

What’s Next I’ll break down the numbers and positioning in more detail in the next segment, but that’s the big-picture view for now.

Analyzing Price Cyclicality and Drawdowns

Let’s start by looking at Deckers’ price cyclicality and how the stock has historically behaved during downturns. If we go back to around the year 2000—which I’d consider the start of the modern era for this business—we start to see consistent patterns emerge. After the company IPO’d and the stock initially sold off (as many IPOs do), it entered a phase of more trackable performance.

There are several periods where the stock experienced declines of 40% to 60%. One stretch looks like about a 50% decline, and another—though less obvious—was likely close to 50% as well. I’ll pull those up in FastGraphs in a moment to confirm. But overall, we’ve seen the stock regularly dip in that 50-60% range during standard corrections.

Major Downturns: 2008 and Brand Weakness Period

During broader macroeconomic downturns—like the Great Recession in 2008—Deckers stock dropped about 75%. That’s a deep decline, especially considering that earnings were relatively resilient during that period.

Then we see another big drawdown—again around 75%—a few years later. This one seems to be more mid-cycle, possibly caused by brand weakness or strategic investments like acquisitions or rebranding efforts that temporarily impacted growth.

When I Buy: Thresholds for Deep Cyclical Strategy

There are really two entry points for a stock like Deckers in my deep cyclical strategy:

1. At or just after a 50% decline

2. Closer to a 70-75% decline, often during major recessions

Now, I typically don’t buy deep cyclicals unless they’ve dropped at least 50%. But Deckers is a bit of an exception because of its high-quality brand portfolio. That allows me to be a little more flexible.

I’m comfortable buying after a 50% drop with the expectation that it could drop another 50% from there. I’ve got enough dry powder to average down if that happens.

Position Sizing and Risk Management

For now, I’ve taken a half-weighted position in Deckers. The plan is to layer in slowly depending on how macro and political developments unfold. If it drops further, I’ll consider adding at levels like 60%, 65%, and even 70% off the highs.

If Deckers were to fall all the way down to 70-75%, I’d likely build it into a 2% weighted position, which historically offers the potential for a 200% return if it rebounds to previous highs.

Recovery Timeline: What History Tells Us

Recovery time for Deckers has historically been fast. After major drawdowns, it has typically rebounded in one to two years. In deeper declines, the recovery has taken up to five or six years, but if you're buying at the bottom, a 200% return in five years is a solid outcome.

Caution: This Peak Is Higher Than the Last

One thing to watch: the current cyclical peak is higher than the last one. That could mean we’re in for a deeper drawdown this time. But when I looked at valuation levels, the peak P/E was 38, compared to a P/E of 33 during the last peak—not dramatically different. So this doesn’t raise any red flags for me yet.

The Tariff Situation and Vietnam Exposure

Now let’s talk tariffs, which is a key part of why Deckers has sold off.

The sell-off began shortly after the recent U.S. inauguration, when new tariffs were announced—especially on countries like Vietnam, where a lot of apparel and footwear is manufactured. I haven’t confirmed Deckers’ full supply chain, but Vietnam is likely a major source.

The logic behind the tariffs? Flawed at best. Vietnam doesn’t have significant trade barriers against the U.S., and even if they did, they’re not preventing meaningful American exports—the population just doesn’t have the income to buy more U.S. goods. So penalizing them over the trade deficit doesn’t really make economic sense.

Why Friday’s Bounce Matters

On Friday, Deckers and other footwear/apparel stocks rallied about 5% after news broke that Vietnam is willing to negotiate or reduce tariffs. That’s no surprise—Vietnam isn’t making much off U.S. tariffs anyway. This headline was enough to trigger a bounce in the sector.

I bought before that bounce, during the last leg of the decline. But I see this as validation of my thesis: the specific risk driving the current selloff is overblown.

Think Long-Term: U.S. Shoe Production Isn’t Coming Back

Here’s the reality: we’re not building new shoe factories in the U.S. That’s not happening. Labor costs, infrastructure, and economics just don’t make sense.

So what happens when back-to-school shopping comes around and shoes cost 30-50% more? Parents will freak out, and political pressure will spike. This isn’t sustainable. The tariffs may look serious on paper, but they’re unlikely to stick.

Macro Risk Still Matters

To be clear, I’m not ignoring macro risks. If we get a bad recession, people will cut back—even on shoes. There’s real consumer demand risk and credit availability concerns. But that’s different from the Vietnam tariff story, which I think is short-lived.

Conclusion

So that’s why I’m buying after a 50% decline, even knowing it could fall more. I see a mispriced fear around a political event that likely won’t last. This creates a short-term buying opportunity in a high-quality business with strong brands.

This is a name that could turn into a long-term hold. I did something similar with Adidas—bought during a downturn, made close to 100% on the bounce, then kept holding half long-term. If Deckers keeps executing, I could do the same here.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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