Earlier this month, California-based footwear company Skechers (NYSE:SKX) announced a large $250 million bank facility, which could give the company some good breathing room. Additionally, Skechers' stock has bounced nicely off its lows earlier in the year.

This doesn't mean I'm an out and out bull on SKX, and that I think this is the ideal time to be running into the stock. Even with the positive happenings mentioned above, there are a few things that turn me off.

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Skechers' Place In the Market
Right off the bat, let's think about all of the potential competition out there. Skechers offers sandals, casual and athletic shoes, and clothing, but some part of me is thinking that consumers may be very tight fisted in the near future and might be headed to discount footwear rather than Skechers. It's hard to compete with discount stores like Target (NYSE:TGT) or Wal-Mart (NYSE:WMT), which have pretty sizable casual shoe selections and clothing at low prices.

Future Earnings
When looking at a company, it's important to investigate earnings and the prospect/outlook for future earnings. I'm not too crazy about what I am seeing in terms of Skechers' near-term prospects, and Wall Street's expectations aren't any better. In fact, SKX is expected to earn just 36 cents this year, which isn't all that attractive given that the stock trades around $12 a share, about 33 times this year's estimate. Of course, the current 87 cent estimate for 2010 is more appealing, but it's unclear if the company will be able to hit that number. (For more on analyst expectations, be sure to read Analyst Recommendations: Do Sell Ratings Exist? and Analyst Forecasts Spell Disaster For Some Stocks.)

Mixed Competition
Right now I would consider buying Nike (NYSE:NKE), which obviously has a great name in the footwear business, for roughly 15 times the current year's estimate. In addition, NKE offers a nice dividend.

I want to give credit where credit is due and say that I think that the Skechers stock is a better deal than Crocs (Nasdaq:CROX), the once-popular (among consumers and investors) footwear company. Crocs' below- 5 share price is a big turn off for me, as are the losses it is expected to generate.

Bottom Line
I'd rather wait several more quarters to see how things pan out before climbing aboard SKX. Ideally, I'd like to see a couple of more quarters of Skechers beating expectations, even though the company has beaten expectations for three quarters straight.

I wouldn't rule out stepping into Skechers at some point in the future, but right now, given the economy, the competitive environment and the fact that I think that there are better opportunities out there, I am not going to get involved. However, investors should keep an eye peeled, because on July 22, SKX will roll out its second-quarter numbers. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)

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Tickers in this Article: SKX, CROX, NKE, TGT, WMT

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