$DECK · The Investor's Podcast · 2026-10-31

My pick is Decas Outdoor. Decas owns the Hawker running shoe brand and Ugg boots. It's a 10 point. So the stock price uh when I prepared the $77 handle market capitalization $10.6 billion P is 11.

They've got $1.6 billion in net cash on the balance sheet. No debt. Enterprise value is $9.7 billion. Um revenue through to March 2026 was 5.5 billion which was up 10%. Uh hawker grew 15.9% but has slowed to the most recent quarter to 7.7%.

Um UG grew 8.2% to $2.74 billion. So there it's about half hawker half UGG.

It's not an SPGI. It's not as a motier a business as that. It's not a Novo Nordisk. It's a much uh more fragile business than either of those two, but there's a huge discount to those two as well.

This is the sort of business that I like to buy in the funds that I manage. We look for things that are potential takeout candidates that are trading very cheaply on a financial basis.

So that the beginning of our analysis is the valuation and then we're looking for sufficiently good businesses that have some growth built in. Not necessarily, although if they're cheap enough, we don't need the growth, but in this case, there is some growth.

At $77, this is being priced as if it has no growth.

There are quite a few qualities of Decas that I quite like. It's a very, very clean business. Clean management, clean balance sheet. very well-defined products in their categories.

People absolutely love the hawker running shoe. [clears throat] They absolutely love UGGs. They're very loyal customers to those things. One share class independent share. Uh it's Cindy Davis.

She used to be with Nike, so she knows the business. All the directors are independent. No related party transactions. The $1.6 $6 billion in cash is about $11.75 per share, which is about 15% of the market value.

It was trading north of $200 before the tariffs hit in April last year, and it absolutely collapsed when the tariffs hit. So that tells you part of the story.

People absolutely love the hawker running shoe. They absolutely love UGGs. They're very loyal customers to those things.

Part of it is also there's this folks who follow the market will know that the market's become very concentrated in a handful of the AI beneficiaries, the hyperscalers, and everything else basically outside of those businesses is in a little bit of a bare market.

They're all down quite a bit. You could look at a stock like Nike, it's way down. It's 80% of its peak. There are many examples of these previously what were considered very highquality businesses that have sold off hugely.

The Uggs uh are the uh you know that's the shielding shoe that's turned inside out. So you have the wool on the inside. UGG is the trademark. They have the trademark. But there are obviously there are potential competitors out there.

The CEO Stfano Karate. He's uh a million in salary, $3 million in bonus, $6 million in stock. So 60% of it equity grants. He's performance-based investing over 3 years. So I like his I like his compensation.

There's no return on capital measure, which is that's the old Buffett metric. He liked to judge these guys on return on capital. I don't think it matters so much because this is a naturally high return on capital business, but that's just something worth flagging.

I think it's a fairly mild sort of criticism because he's a very experienced guy. He's been in the industry for 30 years. to be with Nike and Puma. He's run Hoker since it's uh since it sort of breakout capital allocation I absolutely love. This is my favorite kind of setup.

These guys don't run a dividend. They have no debt. They buy back stock. Buybacks are 80% of free cash flow. So, this is a they're really focused on the the capital structure here.

Share count fell 7% year-over-year. The share buybacks were done at $102 and $104 and the the stock is currently trading at $77. So, they're underwater on those buybacks, but the the buyback authorization is $4. 7 billion, which is more than 40% of that market capitalization.

If they continue to grow at the modest rate that they are and buy back stock at that level, this the remaining shares will do very well. The amount of cash that they have is very very conservative.

1.6 to$ 1.9 billion and they they're cash flow positive. I think it's a good thing that they continue to buy back stock. I don't want them to go into debt doing the buyback. I think that they'll just keep on buying back out of cash flow and using the the cash on the balance sheet. I hope that they continue to do that.

I still prefer debt to both net cash and higher margins. I like um seven times EV operating profit. It's around that sort of 7 to eight times EVA. That's pretty cheap for a business of this quality.

As to fair value here, there's a few assumptions built in on a if you assume no growth, um fair value is probably roughly where it is. Maybe a little bit of a discount, $72 versus $77.

I don't think that's a reasonable assumption because it is still growing pretty well. It's growing faster than inflation, significantly faster than inflation. Plus the buyback will mean that there's value acrewing to the remaining shareholders at a pretty high clip for an extended period of time.

I think that part of the selloff has to be the slight reduction in growth. It was sort of 16% last year. It's now 8% sort of to the most recent quarter. Management says that there's some they're trying to adjust to the tariffs. There's some timing issues.

I also think that a lot of consumerf facing businesses are seeing this. I think there's a real squeeze on consumers. interest rates are up, that hurts consumers. Uh, energy prices are up, that hurts consumers.

Diesel's very, very expensive. That filters through to all of the other prices. So, that that's inflation and prices. Um, we've also seen student loan repayments have been turned back on the states.

So, that squeezes discretionary spending that would otherwise be spent on something like this at the margin. So I think that there are a lot of macro factors that aren't directly in uh their control that are impacting and the tariffs that I mentioned earlier.

I think that those things they're all a little bit cyclical. When the consumer gets squeezed, these sort of opportunities pop up. It's a good chance to buy these sort of stocks when they're in this little bit of a slump like this.

I would assume that Hawker and Oron compete for folks. I should have mentioned this at the start. Hawker. If you're not a runner, you might not know about the the hawker shoes, but they they have the very their big selling point is they have the very fat shoes and they've got this little shape to them, this little rock that's supposed to help you run a little bit more easily, go a little bit faster.

But there sort of a direct um contrarian in the running community. You know, there was the barefoot craze for a little while where people wanted no cushioning at all. I'm still honestly in the barefoot part of the market, but there's also this other side that they've gone the other way where you have the the additional padding and hawk is the they're the additional padding guys.

So, it's a there's this like philosophical debate among runners which is the better shoe. I don't know the answer, but if you're a if you're a if you prefer the fatter shoes and you prefer the hawkers and people who like these shoes become very very loyal to the brand. They love those shoes.

Similar with Uggs, not really a performance shoe, more of like a In Australia when I was a kid, you would never wear these things out of a house. That was considered to be an an inside shoe.

And then they got exported to the States and people started wearing them outside as sort of like a fashion thing. You'd see these attractive young girls wearing UGG boots and so they blew up a little bit and became very fashionable.

I think that fashion has passed a little bit and now they're more comfort shoes, but you certainly see them around in winter when it gets a little bit cooler.

So, in summary, I like Decas because it's very clean across all of the sort of things that I care about. Capital allocation, management, the the shoes have loyal followers and it's very clearly defined what they are in the market. people people who who like them, love them, and uh they're taking advantage of this sort of temporary undervaluation by buying back enormous amounts of stock. I think it's a reasonably safe bet.

Although, as I said earlier, it's not it's not the sort of moy business that SPGI or Nova Nordisk is. It's a much more fragile business because it rests on these two brands. But having said that, you are compensated because you're getting a much deeper discount.

Yeah, I think this is a very interesting pick, Toby. It it is like a Toby like pick for sure. Uh because I when I was trying to like you know look into it, it sounded so attractive.

It's hard to come up with excuses not to buy. It's a very asset light business. They don't own their production facilities. I was just thinking about Noah's case where they're blowing in capex to build those facilities so that they can increase production in case of correct me if I'm wrong Toby these guys just outsource it to partners or vendors in Vietnam and other places very cost- effective manufacturing but nothing stays on their balance sheets and that shows in their ROIC's amazing business and like you know I I see hok shoes everywhere whenever I'm going for jog or anything so it's quite popular.

So the only thing that I wanted to ask you but you answered at the end is like how is the management and are they buying more now buying back stocks more now than before? Looks like you said yes.

So that's a good sign as well. And the CEO is also pretty good and like unlike Nike you're talking about which is very interesting. They they made a couple of missteps in terms of how they were marketing their product, where they were positioning. they withdrew from their say the suppliers and the retailers and wanted to go direct sales.

So they they did a lot of missteps in terms of brand positioning. Looks like none of it under the current CEO who has been there for a long time now and has really shephered the company and uh also grown the brands like Hoka from the beginning as you said.

The only concern I would have is the slowdown in growth in case of Hoka from say 24% to 16%. And you already mentioned UGG is a maturing brand in the low mid single digits that it is growing.

I guess what are the potential of your base case coming true is what I'm thinking which means it's currently at the fair value range already. And if that is true, Toby, would it still be a good investment?

That's my question. Like, so of course like saying hawka and will go away or fade away.

Yeah, that is a very edge bear case. I don't see that happening though uh from what I see the trends. But if they continue to slow and mature in their growth um absent a buyout by a private equity, what would be the returns in the kind of slightly bearish base case that you just mentioned?

>> Yeah, thanks Harry. I think through these in scenario analysis. So I'll just take you through my scenarios. The bare case is that hawker stalls and UGG for whatever reason is more of a fashion and so it goes through this sort of fashion downturn which that's possible um in that I'm assuming growth of 2% across both brands which is like less than inflation.

So that's basically just like they're getting squeezed on cost. It's not real growth. real shrinkage inflation adjusted returns and I've said the terminal multiple is eight times there.

So that gets me to $72 per share versus $77. That's the bare case.

My base case, this is just taking management's numbers um and just trimming them a little bit. In that instance, I say 3% growth and an 11 times multiple and that gets me to about $113 as fair value.

And then there's a bull case where we say that the slowdown in hawker growth is some sort of macro factor where people are not spending on these shoes because they're just getting squeezed elsewhere. they're not updating their shoes as often because they're paying back student loans or more is going to groceries or more is going to the gas tank, which I think all of these things are actually happening.

And then if these pressures were taken away, which I don't think they're happening anytime soon, but there's the possibility that those pressures do go away over time, and then you get back to more like 4% growth, and that probably warrants a 14 times multiple that gets you to like $160.

I think that that's a fairly low probability, but I think it's a kind of comparable probability to the bare case. So I think that they're both say 20% probabilities and then the base case which is the management's case is a 60% probability and so the mid-range there is something like $110 to $115 versus $72.

I don't know which one's more likely but that's sort of the way that I think through it.

And so I think about the skew in something like that where my downside $72, my upside might be $161. Although I don't think either of those scenarios is particularly likely and probably management's midcase with management buying back.

This is assuming no private equity firm shows up to take them out and you still end up with pretty good returns. In that instance, it sort of caps your downside a little bit. there's a bid there under the stock and if they start running again then all is good. So that's the way I think about it.

>> Toby uh classic Toby pick [laughter] and I I love it. Um you know I um I tried to look at the fundamentals before I look at the the share price and of course I failed miserably this time around.

So, I looked up the uh the stock first and saw it was trading at a 52- week low and I could not square that. Whenever I looked at the fundamentals, it just it looked off. I thought I was looking at a declining business and it was not I wouldn't say it was fing all canders, but it looked very very healthy.

I was greatly surprised. So I was sort of like trying to figure out like why is it that the market doesn't like this stock.

Um now I can come up with a with a few reasons and and you also mentioned a few of them yourself. I think the base rate of what they're trying to do of reacelerating and of course you can say that some of that is already priced in but if you look at other brands uh Crocs Under Armour Sketchers Vans Lulu and I don't know if I offend anyone if I group them all together it's probably not fair but it's very tricky to reacelerate growth whenever you first see a decline.

That's just the nature of the business. It's not specific to any brands. It's just that's that's just part of it. So, I think that there's probably a base rate skepticism included there.

There's probably also something to be said about it's a tricky tricky price point like $200 for a pair of shoes. Now, um I think there was probably a narrative around LVMH, you know, a few years ago where, oh, people with money always have money.

And of course that you also see LVMAS being flat, but it sort of like goes to what you were also getting at before where it's a tricky price point. There's a lot of pressures from, you know, whether it's tariffs or price of diesel and just general inflation.

Like it's um it's tricky for um a lot of brands that are in that range where it is pretty discretionary and perhaps some of the things that that you might not buy or perhaps you're going to wait another 6 months or whatn not with that purchase.

And I found it to be quite interesting that you mentioned that they have loyal buyers. Um, you know, I I don't think I'm the I'm the best person in terms of the tie group. I probably have used Nike for I don't know 10 15 years.

And then last time my wife said I found these other brand I think is ASEX or something like that. Like I don't have a very sophisticated system like whatever my wife is [laughter] buying for that's whatever I would use.

So anyways, I if if I can sort of like say I'm sure more people are way more fashionable than what I am. Um I think that there's probably something to say about the Apple test, right?

I don't know if you gents are iPhone guys, but if I if I ask you guys like, "Hey, if you have an iPhone, how much could I pay you never to use an iPhone again and use an Android instead?"

You know, I don't know. We don't have to play that game because now I'm giving all kinds of biases. It's probably more than $1,000. is more I don't know if it's more than 10,000.

There's probably an amount where you're like, "Okay, for a million bucks or whatever, like there's probably an amount where you're like, "Yeah, I'm never going to use an iPhone anymore."

But the the price is probably high for a lot of not just for you guys, but for a lot of listeners, you're used to an iPhone. You really like it. There's probably something about the brand.

It's not just functionality, but probably something about the brand. Something about the ecosystem, how if you have a MacBook, it works together. And it's quite unreasonable for me to say this

I absolutely love their capital allocation. I think that's probably one thing um I want to highlight. I would also be quite curious about does this signal that the stock is undervalued which I would imagine that it does or that they cannot buy I'm going to say a third brand and it's not completely fair whenever I say a third brand because they do have a third brand it's just very very small um I think Tiv is like 4% now but like whenever they acquire Hokab for example in 2013 it was almost free and now it's doing 2. 6 six billion in in sales.

And then there's probably a component where I would really like for management to buy the open market but you know you can say that about all uh all um management and very few are actually doing that.

next time I speak with him I should probably ask why did he sell Nike to buy Decker.