Some of the best investing advice you’ll hear is to “invest in what you know”.

It’s difficult to understand a business if you don’t understand the product or why people buy it.

One of the best investment ideas you can get is to look at the products you buy regularly because you will understand the customer intimately (because you are one!).

This brings me to my experience with Hoka One One.

Hoka One One (or Hoka for short) is a brand of running shoe that is popular with long distance runners (marathon distance and up).

I came across Hoka after running my first two marathons, where I had used Merrell shoes.

Merrell is great, but I experienced foot pain during both those marathons and for my third, I went to Shoe Science to get recommended a better shoe. I tried a few brands, including Altra and New Balance, but eventually settled with the Hoka Clifton 8.

It was the most comfortable shoe I’ve tried, and my next race went like a dream. No foot pain at all!

Over the next two years I purchased a total of four pairs of Hoka shoes. They were expensive but price didn’t matter – I had found my shoe and I was sticking with it (very common with runners).

These are two indicators of a very profitable product:

• High price/margin
• Brand loyalty

I looked into investing in the brand, but at the time it was a pass.

Hoka is owned by Deckers Outdoor (NYSE: DECK), who also own the UGG brand (yes, the furry boots). At the time, Deckers was trading at all-time highs and very high multiples (around 30x profit). Great product, bad stock pick.

That was a couple of years ago.

Deckers has just gone through a correction and is now trading at a much lower valuation:

Currently the company is worth ~$18b.

The last time it traded here was in early 2024, when sales were $4.1b and profit was $720m.

Now sales are $5b and profit is $920m.

Same price, but now with $1b more sales and $200m more in profit (and growing).

I remember first looking at the stock some time in 2020, and it was trading well into 20x or sometimes 30x earnings.

Today it’s trading around 18x while its sales and profits are at all time highs. As you can see, other than a dip in 2022, this is the lowest multiple it’s been in the last 5 years.

While 18x doesn’t sound like a bargain, remember the Peter Lynch advice:

“A company trading at 20x earnings growing at 20% per year is NOT expensive.”

Why?

Because if it continues to grow at 20% per year, that multiple will quickly start to shrink. Next year it will be 16.7. The following year it will be 13.9. The year after 11.6.

But that’s if the stock price doesn’t move. It’s more likely the stock price maintains its multiple, meaning your stock price will grow very quickly.

Even better, if your stock is trading at a historically low multiple (such as Hoka today), you have the added potential of another Peter Lynch favourite – multiple expansion.

Multiple expansion is when the market “upgrades” the stock (or a stock simply recovers) from an 18x earnings stock to a 30x earnings stock.

This “double” growth – of earnings growth and multiple expansion, leads you to a multi-bagger investment very quickly.

So in short – the price is looking good. Let’s look at the business.

How Deckers Makes Money:

Deckers owns the following brands:

UGG – UGG is the famous sheepskin boot brand that originated in Australia. Deckers acquired UGG back in the 90s for $15 million. Today UGG does sales of $2.2b worldwide. It’s still considered one of the most “genius” acquisitions in the history of consumer retail.

Hoka One One – Hoka was a French running shoe brand. It’s popular in the ultra-distance, marathon, and triathlon space and is an official Ironman partner. Deckers acquired them for $1.1 million back in 2012. Today Hoka does sales of $1.8 billion, and growing 22% yoy.

Teva – Teva is an outdoors brand focusing on hiking boots and hiking sandals, originally founded in the US in 1984 by a river guide who wanted to make waterproof sandals. Deckers acquired them in 2002 for $43 million. Today Teva does $148m million in sales and around $20m in profit.

AHNU is a premium lifestyle brand launched in 2024. Estimated sales are around $30m (it’s not reported specifically) and about $5m in profit.

The business model is straightforward – they acquire footwear brands and grow them. They’ve been highly successful in doing so – with UGG and Hoka being phenomenal successes, and Teva being very profitable.

They’re not immune to mistakes, one of them being Sanuk – a casual surf/summer brand that they acquired in 2011 for $120 million. In 2024 Sanuk did $25 million sales and made a loss of ~$14m. Deckers sold it last year for an undisclosed sum (but we should find out when the annual report drops for 2025).

Another “failure” is their Koolaburra brand, which was a budget spin-off of UGG. Koolaburra still operates but will be phased out this year.

Capital management

Making sales is only half the battle.

You also need a management team that knows what to do with the money.

When investing in a fast-growing brand, what you like to see is growth that is funded by organic growth in sales and profit, not debt. There’s no point buying a brand that will add $5 billion in sales if you need to pay $50 billion for it and take out a loan to do it!

Sounds stupid, but companies do that all the time.

What we’ve seen with Deckers is the opposite – they’ve spent a total of ~$59m on their three key brands, which now generate over $4b in sales and $1b in profit per year.

This is the kind of growth that is not only sustainable but leads to multi-bagging gains.

This is further evidenced by two things. First – the company has zero debt, and has for a long time:

It’s acquisitions are all funded by cash and stock, thanks to their healthy (and growing) cash pile of $2.2b. You can also see this has led to a sustained growth in equity (company value) over time.

Secondly, they don’t pay a dividend.

I love it when mature businesses, such as Coke or Nike, pay a dividend, but I dislike it when growing companies do it. Paying a dividend essentially says to the market, we can’t think of any ways to invest this money in growing the company, so we’re paying it out to you.

I far prefer the management to have so many good ideas on how to grow the business that paying a dividend doesn’t even cross their mind! Knowing that my CEO is out there hunting for new brands to acquire and grow, with a big pile of cash in the bank, makes me sleep very well at night.

Deckers has a clear policy that no dividends are planned in the near future:

What this means is the company will remain cash-rich if it sees any acquisitions they like. When a company has a track-record of making highly profitable acquisitions, this is a great position to be in. It also means they don’t carry any debt, so going bankrupt is practically impossible. Finally it means they’ll never need to raise capital and dilute the stock (classic example is Ryman Healthcare right now).

In other words, a cash-rich company is a well-run company with options. They can freely make acquisitions (including in their own company via stock buybacks) and weather downturns.

The trend is your friend

The Hoka story is one I’ve seen unfold before my eyes.

“Single-player” sports, like running and hiking, have grown massively since Covid and will continue to.

Have you noticed every other week you see a new friend joining a Park Run or training for a marathon and being obsessed about it?

It’s because running is a tough habit to break. Once you start and notice how good you feel after a run, you need to keep doing it. It’s very common to meet people who have been running every morning for 40 or 50 years.

The kicker is, Hoka makes really good running shoes. I know because I use them, and I see them everywhere on the roads. Once people start wearing Hoka, they are often Hoka for life.

Why is this such a good business?

Because running shoes don’t last that long. Depending on how much you weigh, a pair of running shoes lasts you around 4-6 months if you run every day. I’m quite light, so mine can last a year. So once a runner decides they’re Hoka loyal, they’re probably buying 1-2 pairs of shoes a year, probably for many years (or the rest of their running life).

Secondly, Hoka shoes aren’t cheap. When I went to buy the new Hoka Carbon X, I didn’t even look at the price. They turned out to be around $380 NZD. I paid it without blinking. What was I going to do, go and try on a bunch of other shoes to find a cheaper brand? No way! Hoka has been with me through all those hard races! I’m Hoka for life! Most runners think this way.

Interestingly, this is more expensive than even the Nike Vaporfly, but runners still buy it.

Good business? Great business!

The uptick in outdoors activities and fitness also presents opportunities for its other brand Teva.

Some numbers – which brands are growing?

Here’s sales data across the brands for the past 6 years.

UGG is the anchor brand that brings in the most sales, and still grows comfortably, especially the direct-to-consumer segment (this means people who order directly off the company website(s) rather than buying in a shoe store like Foot Locker).

Hoka is the obvious standout, growing at 50% p.a. over the last six years. To be fair I don’t know how much growth is left in the brand – Nike does an estimated $4b in sales from running shoes, meaning if Hoka grew 4x from here they’d be bigger than Nike running – wishful in my opinion. However, 2x over the next 4-5 years sounds doable.

Teva has been flat and still hasn’t cracked the $100m-$150m sales range. This isn’t a disaster because it’s still a profitable line and the brand was acquired for only $43m. So the return has been good, and it still contributes around $20m a year to the bottom line.

AHNU and Koolaburra have also been flat, though they make a small profit (about $5m).

Valuation

What’s the stock worth? Let’s do a simple valuation:

Based on a discount rate of 10%:

For a conservative case – if they grow free cash flows 5%/yr for the next 10 years, it’s trading at just over fair value today (about 8%).

More optimistically – if they grow free cash flows 20%/yr for the next 5 years, and then 10%/yr thereafter, you have close to 50% margin of safety buying today.

I suspect they’ll grow somewhere in the middle of that range, but am optimistic it will skew to the higher end.

For context, Deckers free cash flows and profits over the past 5 years are:

Risks

Biggest risk I observe is changing trends/fashion.

The shoe market is competitive and even within running alone you have New Balance, Nike, Adidas, Skechers, Brooks, Saucony, Altra, Asics, OnCloud, Merrell and many others.

With Hoka the risk is lower, as customers generally buy the shoes for fit/function rather than fad or fashion (I personally think the shoes are quite ugly, but I still wear them because they work so well).

With UGG the risk is higher, as brand loyalty is much lower and the risk of cheaper imitation is likely.

The second risk is political risk, mostly relating to tariffs as Deckers manufactures in both China and Vietnam. This is a big factor in their high gross margins and possibly the reason the stock price is down. As the tariff picture is still unclear it’s not known how much this could affect profit. However, gross margin is high (about 57%) which gives them great pricing control, more so than Nike and other bigger competitors.

Liquidity risk is minimal as cash balance is high and no debts outstanding.

Catalysts for growth

I expect potential growth in Deckers to come from four places:

• Continued growth in the Hoka brand, probably at a slower pace but still above 20% p.a. Hoka typically targets a very niche audience (long to ultra distance runners) but is slowly growing into the casual running space through word-of-mouth. It’s also growing among elderly, nurses, walkers, and even other athletes like tennis players – people who simply want a comfortable daywear shoe. As the customer base expands organically, so should sales.
• Sustained growth in UGG and the Koolaburra spinoff brand – growth is mostly organic and continues at around 8% per year. Brand is established but still plenty of growth opportunities internationally. Koolaburra will be wound down this year which means Deckers will have a renewed focus on UGG under the new CEO.
• Large cash pile available for new acquisitions. Deckers has a history of picking up undervalued brands and growing them quickly. No debt and $2b in cash puts them in a prime position for new opportunities.
• Other brands always have potential to reach “tipping point”, as described by Gladwell in his book about the Hush Puppies phenomenon. UGG’s actually had a moment like this of its own after appearing on Oprah, after which sales skyrocketed. Teva, AHNU or a new acquisition could all have potential.
• Sale of Sanuk will cut costs, losses, and allow resources to be redirected to growing their key brands.
• Multiple expansion in the stock price. Deckers usually trades in the 25-30x earnings range, currently trading at 18x. Potential for stock price to almost double on multiple expansion alone.

I like Deckers as a debt-free business with robust cash flows, two growing “cash cow” business lines with Hoka and UGG, conservative capital management with over $2 billion in the bank, and a business favourable to growing trends.

Disclosure: No current position but looking to enter at current range.