Cult Stocks: The Deckers Boot Camp

This post appeared earlier Thursday on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.

On Wall Street, stocks with a cult following can deliver big gains, especially when there's an innovation driving growth. Stocks like this can be risky, though, especially when expectations get too high and euphoria takes over.

Deckers Outdoor(DECK) doesn't have this problem -- at least not yet -- even though the stock looks a bit tired after a big price run in 2009 and the first half of 2010. But the fact that the stock looks tired doesn't mean it can't start a new uptrend, especially after another strong performance by the major stock indices on Wednesday. Despite Deckers' 5.4% gain on Wednesday, I still view it as a broken stock that needs a round of institutional buying to improve its technical picture. Note that Wednesday's nice gain came amid below-average volume, so it wasn't clear that institutions were the driving force behind the buying. But even though Deckers' technical picture is still a bit questionable, I don't believe it's a broken company -- far from it, actually -- as its growth prospects in international markets look pretty darn good.

Deckers Outdoor is a maker of niche footwear and accessories, with a market capitalization of $1.7 billion. Its UGG sheepskin boots have a cult following. While the company is heavily reliant on the brand for growth, there's optimism that growth will continue, especially in international markets. The company plans to accelerate its expansion with six new store openings this year in the U.S. and three new stores in China. Deckers' retail stores contributed a small amount of revenue in the quarter, but sales are growing rapidly. In the second quarter, retail-store sales jumped 63% from a year ago to $10 million.

In 2009, its UGG brand accounted for 88% of total sales, and its Teva sandals brand made up 9% of sales. One knock against Deckers is that the company is overly reliant on UGG. It's Simple and Other footwear brands are too small to pick up the slack if UGG sales start to moderate.