With the stock market hovering near all-time highs, investors may feel hesitant to make new purchases amid rising concerns of a potential bubble. Signs of economic strain are evident, with a stagnating labor market and increasing auto loan delinquencies, suggesting that many consumers are struggling to manage their finances. Coupled with stretched valuations and a surge in pre-revenue companies in tech sectors, especially in light of the recent hype surrounding artificial intelligence, the market landscape is complex.
Nevertheless, opportunities still exist for savvy investors looking to capitalize on undervalued stocks. Two companies in particular stand out: Deckers Outdoor and Netflix, each demonstrating resilience and growth potential despite broader economic challenges.
Deckers Outdoor, known for its popular Hoka and Ugg brands, has faced significant difficulties, especially since the implementation of the Trump administration’s tariffs. The company’s stock has plummeted nearly 60% since its January peak, primarily due to a combination of inflated valuations and concerns over consumer spending influenced by inflation. Despite these challenges, Deckers reported solid second-quarter numbers, with revenue increasing by 9.1% to $1.43 billion and exceeding analysts’ expectations. Strong performance in its international business, where revenue rose 29.3%, indicates the enduring appeal of its brands outside the U.S. However, the company’s decision to lower its full-year revenue guidance to $5.35 billion—a mere 7.2% growth—has sent shockwaves through the market, leading to concerns about its future outlook.
Deckers’ stock is currently valued at a forward price-to-earnings ratio of just 14, significantly lower than the S&P 500 average. This presents a potential buying opportunity for those willing to look past short-term headwinds, as the company maintains solid consumer demand and competitive pricing. As tariffs’ impact lessens and macroeconomic conditions improve, analysts believe Deckers is well-positioned for recovery.
On the other hand, Netflix, with over 300 million subscribers globally, showcases different strengths amidst market volatility. The streaming giant, categorized under consumer discretionary, operates more like an essential service for many households. Despite a nearly 20% decline from recent peaks and trading close to a six-month low, Netflix continues to generate robust revenue growth, unlike its legacy media peers.
The effectiveness of Netflix’s new advertising tier has opened up additional revenue streams, catering particularly to price-sensitive customers. Furthermore, the success of its original content, such as “KPop Demon Hunters,” signals the potential for expanding into adjacent markets, including branded merchandise and live entertainment. This diversification aligns with Netflix’s long-term objective of establishing a business model akin to that of Disney.
The company’s steadiness in growth, particularly after its recent strategic shifts, positions it well against economic fluctuations in the U.S. market. With a healthy gross margin and a forward price-to-earnings ratio of 34 projected through 2026, Netflix remains an attractive investment option.
In summary, while the stock market faces uncertainty and potential bubble risks, Deckers Outdoor and Netflix illustrate that well-priced stocks can still offer growth potential, particularly for investors who are prepared to navigate the challenges that lie ahead.
