When stocks like fast-growing shoemaker Skechers (SKX) and apparel king Columbia Sportswear (COLM) rallied more than five and almost seven points, respectively, Thursday and Friday, you have to ask yourself how is it possible that these stocks could leap so much in a single session? After all, these are, in the end, clothing companies, not biotechs that came out with a lifesaving product or tech companies that just got built into Apple (AAPL) iPhone 7. They are very good at what they do, but are they that good?
I think this mystery of how stocks make major moves right in front of your eyes must be unlocked for people to understand how the stock market really works. Yes, it is that important to knowing why stocks jump on simple earnings news.
I think the answer is twofold. One is that both Skechers and Columbia did exceedingly well this quarter with new products -- genuine technological inventions -- and they scored with breathtaking international sales, including European sales. The latter was a total shocker given what we have heard from the likes of Ralph Lauren (RL) this quarter and PVH (PVH) the previous quarter, both of which truly disappointed overseas.
But the second and more important explanation for these staggering jumps is the one I have genuine insight to because I have been there: Many hedge funds and their acolytes at brokerage research houses have been using different sampling services to try to predict how both companies are doing, and those services have repeatedly underestimated sales and produced spectacularly wrong results. The moves you see are the direct result of hedge funds reaching for any stock they can find because they got short on faulty information and those short sells must now be covered at all costs.
As Columbia CEO Tim Boyle pointed out on his brilliant conference call: "Perhaps this is a good place to caution listeners about the dangers of relying too heavily on reports from third-party market research firms as proxies for how our brands are performing in U.S. wholesale channels. We have found that the data from some of those services is not representative of our broad diverse U.S. customer base and should be read with caution."
Wowza. I cannot tell you how significant this statement really is. Often you will see Columbia as well as Skechers plummet mysteriously intraday. That's because of these kinds of services telling people there's weakness that nobody knows about. I have seen it happen again and again with Skechers and it is almost always pretty much a raid. It is daunting for shareholders to endure these raids, and this was the quarter where I guess Columbia had had enough of this kind of manipulation -- which is really what I have to call it -- given how it can't truly be considered responsible analysis and leads to horrific trading that scares investors and makes them believe the company's doing far worse than it really is.
I think VF Corp. (VFC) is also lumped in as another company that is victimized by this research, which could also explain its spike, although VF also did report exceptional European numbers.
I have been a huge supporter of Skechers, Columbia and VF and I have watched how their stocks trade and marveled to myself about how they have lids on them because of this kind of faulty research. I hope this quarter shows people the true worth of these services.
In truth, Skechers is in the very early innings of a worldwide growth story that seems only to be constrained by an inability to get product out to meet demand.
Columbia, in part because of a technological invention that allows down to stay warm when wet, has seen its apparel sales accelerate. But it has also had a major function change in selling Sorel shoes, which have become elite winter wear. I also was quite impressed by the quick results that PrAna, the yoga apparel company, has given Columbia since its acquisition last year, and I applaud the success of its Chinese joint venture. The third-party research firms missed every bit of this move.
Now, apparel's a tough game. I thought for sure that Deckers (DECK) was doing better than it was in part because they came on Mad Money twice with a level of confidence that now seems misplaced in light of their numbers.
But in the case of Skechers and Columbia, the trajectories are very clear: Sales and earnings are going higher and these last two quarters are pretty much the real deal, unlike what the third-party services would have told you about how well they were both doing. In other words, the Street's on the wrong side of the trade of these two, and you, if you believe and I am urging you to do so, can be on the right side of the investment.