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Ash Flow. That Means There's Lots Of Roo
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Both of these companies fall solidly outside of the "Fragile" camp. Even though Nike's debt load is significantly greater -- relative to its cash position -- as Skechers, the company should have no problem making payments on that debt. This past year, Nike You must be registered to view this link did have to make one large $1.2 billion payment on its debt. But between 2014 and last year, the most it has had to devote to paying off the current portion of long-term debt was $330 You must be registered to view this link million. That's a figure that's easily covered by the company's free cash flow.
But Skechers is clearly in a superior position should a crisis hit. Not only is its debt load much smaller -- relative to cash on hand -- but it also has a commensurate level of free cash flow for its size. Perhaps most importantly, if a downturn You must be registered to view this link were to hit today, Skechers would have the freedom to buy back its shares at cheaper prices or even acquire popular start-ups that might be trading for significantly depressed prices.
Because of its current debt load, devotion to paying a dividend (more on that below), and the fact that the company is so large that small acquisitions You must be registered to view this link would barely move the revenue needle, those same opportunities wouldn't be present for Nike.Finally, we will try and figure out if how expensive Nike and Skecher's stocks are, relative to one another. There's no litmus test that can readily tell us how they compare, but we can consult a number of variables to get a better idea for You must be registered to view this link what we're paying for if/when we buy shares.On this facet, these two are more evenly matched. In the previous section, Nike's devotion to paying its dividend was a mark against the You must be registered to view this link company. Here, it's an advantage; while the 1.2% yield today isn't much to write home about, the payout is very sustainable, as it only eats up half of the company's free cash flow. That means there's lots of room for growth in the future.
But Skechers trades for cheaper or commensurate ratios across the board. In the end, the You must be registered to view this link tiebreaker is the PEG ratio, which tells us how expensive a stock is relative to its growth. On that measure, Skechers is trading for a 75% discount. A huge part of this is due to the fact that the stock suffered the aforementioned sell-off in April while the long-term growth outlook for the company remains largely unchanged. Because You must be registered to view this link of that, I'm giving the nod here to Skechers.
So there you have it: While Nike has a stronger moat around it, it's impossible to ignore the strong balance sheet and cheap(er) price that You must be registered to view this link Skechers is trading for right now. That said, I'm never particularly optimistic with companies that rely on brand value alone for their moat, which is why I own neither of these companies -- nor am I willing to make an "outperform" call on them in my CAPS profile.
If you must choose between these two, I would go with Skechers. You must be registered to view this link But I think there are better places to invest your hard-earned cash today.
 



 
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