It has been a rough few years for Nike(NYSE: NKE). The global footwear and apparel giant has seen its revenue stagnate since 2022, with sales actually down 3% from highs over the last 12 months. The brand has had a rough go in China, where consumer spending is extremely weak, but it has also battled with new upstart brands such as Lululemon that are trying to steal customers.
One under-the-radar competitor -- and a recent stock-split stock -- that has beaten Nike at its own game is Decker Brands(NYSE: DECK). The owner of multiple footwear brands has grown sales at a much quicker pace than Nike in recent years. Over the last 10 years, the stock has posted a total return of 1,000%. Nike's stock is barely up over 100%.
Here's why Decker Brands is taking market share from Nike in the footwear market.
Taking market share in running shoes
Nike got its start by selling running shoes in North America. Decker Brands has directly attacked this long-standing Nike customer with its Hoka brand. Built for environmentally conscious running enthusiasts looking for comfortable shoes, Hoka has positioned itself nicely compared to the standard Nike running shoe.
Last quarter (ended June 30), Decker Brands revenue grew 22% year over year to $825 million. Most of this growth was driven by Hoka brand revenue up 29% year over year to $545 million. Nike is still a much larger company than Decker Brands (it generated more than $11 billion in sales last quarter alone), but it is seeing a sharp decline in sales. Revenue was down 10% year over year last quarter. It is not hard to see the connection to Hoka, with some of this spending leaving for the upstart competitor.
As a more premium product than Nike, Hoka is able to generate better operating margins for its parent company Decker Brands. Over the last 12 months, Decker Brands has posted an operating margin of 22.3% versus 11.8% at Nike. Nike's profit margins have been trending downward while Decker Brands' have trended upward.
Strong track record with multiple brands
Decker Brands got its start selling sandals in 1973. It bought the Ugg women's footwear/slipper brand in 1995, Teva sandals in 2002, and Hoka in 2013. All three of the brands are now significantly larger than when Decker Brands made the acquisition. Ugg recently made a resurgence with consumers due to the reinvention of its footwear styles. Revenue for the brand grew 14% year over year last quarter to $223 million.
What this should tell investors is that Decker Brands' success is not a fluke: It has a track record of buying and building multiple footwear brands to much larger levels. No wonder the stock has been a 100-bagger since its IPO in 1993. And with quarterly revenue still well below Nike and even Lululemon, there is a ton of room for Decker Brands to grow from its existing brands. Investors should have confidence that management has built a strong culture of innovation. It knows how to win in the footwear market. 
NKE PE Ratio (Forward) data by YCharts
Is the stock a buy?
Decker Brands has clearly been a fantastic stock to own over the last 10 years. But that doesn't automatically mean it is a buy today.
At its current market cap of $24.6 billion, the stock trades at a forward price-to-earnings ratio (P/E) of 30.4. This is a forward metric based on analyst earnings estimates for the next 12 months. For reference, the S&P 500 currently trades at a P/E of 30 based on its trailing earnings, and this is much higher than its long-term average.
Even though Decker Brands is growing quickly today, I think a forward P/E of 30 is too expensive to buy this stock. Footwear can be tricky, and there is no guarantee that Hoka, Ugg, and Teva will grow sales indefinitely. Sometimes -- as Nike is finding out today -- you hit a ceiling for your market niche and target customer audience.
Decker Brands is a great business with a long history of success. Price matters, though, and that should keep investors away from this stock for the time being.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica and Nike. The Motley Fool has a disclosure policy.
