Best known for its rugged work and military boots, Rocky Brands, Inc. (RCKY) has gained 86.8% over the past six months. The stock closed Friday’s trading session at $43.59 after hitting its 52-week high of $44.05. Even though RCKY’s revenue fell because  the company had to shut down several of its physical stores at the beginning of the COVID-19 pandemic, its net sales have rebounded since the third quarter (ended September 30, 2020).

Rocky Brands’ impressive performance since then has been driven primarily by gains in its wholesale and retail divisions. With a widespread and growing fitness awareness, many people are also using athletic footwear as casual footwear, which has further accelerated RCKY’s footwear sales.

The athletic footwear market is expected to grow at a CAGR of 3.5% from 2019 to 2026. This should bode well for RCKY.

Here’s what we think could influence RCKY’s performance in the near term:

Forthcoming  Acquisition of Leading Brand Portfolio from Honeywell

RCKY announced in late January that it had entered into an  agreement to acquire the performance and lifestyle footwear business of Honeywell International, Inc. (HON), which includes  The Original Muck Boot Company and XTRATUF footwear brands, for a purchase price of $230 million. The acquisition has been approved by RCKY’s board of directors and is expected to close in the first quarter of  2021.

According to Jason Brooks, the President and CEO of RCKY, “With the acquisition of The Original Muck Boot Company along with the XTRATUF, Servus, NEOS and Ranger brands, we will greatly enhance our powerful portfolio of footwear brands and significantly increase our sales and profitability.”

Impressive Recent Financials

The company’s net sales have increased 16.3% year-over-year to $87.62 million in  the fourth quarter ended December 31, 2020. RCKY’s income from operations have increased 93.8% year-over-year to $12.90 million over the same period and its net income has increased more than 91% year-over-year to $9.72 million. Also, its adjusted EPS was reported to be $1.41, up 107.4% year-over-year.

Furthermore,  RCKY surpassed consensus EPS estimates in three of the trailing four quarters.

Discounted Valuation

In terms of non-GAAP forward price/earnings, RCKY is currently trading at 13.41x, 25.7% lower than the industry average  18.06x. In terms of forward enterprise value/sales, the stock’s 0.99x is lower than the industry average 1.59x. And its  stock’s forward price/sales of 1.08x is 16.9% lower than the industry average 1.30x.

Favorable Analyst Estimates

Analysts expect the company’s EPS to increase 250% for the current quarter ending March 31, 2021, 10.9% in 2021 and at a rate of 10% per annum over the next five years. The consensus revenue estimate of $68.60 million for the current quarter represents a 23.1% rise on a year-over-year basis.

Favorable POWR Ratings

RCKY has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, RCKY has a grade of A for Value in sync with the stock’s lower-than-industry valuation ratios.

The stock has an A grade for Growth as well, given  analyst estimates that RCKY’s revenue and EPS are expected to grow significantly in the coming months.

Click here to access RCKY’s grades for Momentum, Stability, Sentiment and Quality as well.

Of 67 stocks in the B-rated Fashion & Luxury industry, RCKY is ranked #1.

Also, click here to access several other top-rated stocks in the same industry.

Bottom Line

RCKY is a great pick given its impressive performance over the last-reported quarter (ended December 31, 2020), favorable industry outlook and its impressive recovery since hitting its 52-week low of $14.96 on March 18, 2020. With its forthcoming  acquisition of a leading brand portfolio from HON, we believe it is wise to buy this undervalued stock now.

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RCKY shares were trading at $46.15 per share on Monday afternoon, up $2.56 (+5.87%). Year-to-date, RCKY has gained 64.41%, versus a 3.89% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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