Here’s why Birkenstock shares are down nearly 16% in the past month

Stocks of the shoe company Birkenstocks (BIRK -1.83%) fell 15.6% in August, according to data provided by S&P Global Market Intelligence. In fact, the stock was up nearly 8% at the end of the month before the stock plunged on August 29. That was the day the company reported financial results for the third fiscal quarter of 2024. As you might have guessed, investors were disappointed after looking over the numbers.

To be clear, it’s not because Birkenstock’s numbers were bad. On the contrary, the company set records. The London-based company reports its financial statements in euros. But adjusting for dollars, it generated more than $600 million in Q3 revenue and had a net profit of about $80 million. Both numbers are strong.

However, there’s a gap between the good numbers and the numbers investors were expecting, and that’s why Birkenstock shares fell. Investors apparently wanted the shoe company to post better growth and raise its full-year guidance. But that didn’t happen and it led to disappointment.

What exactly happened to Birkenstock?

Like other footwear companies, Birkenstock sells through retail partners (known as B2B revenue) and sells directly to consumers (known as DTC). Ideally, companies would increase revenue by selling directly to customers, as it would represent a higher sales figure and potentially better profits. But in Q3, Birkenstock’s B2B revenue grew much faster than DTC revenue.

Stifel Analyst Jim Duffy noted this when he lowered his price target for Birkenstock stock from $70 per share to $63 per share. According to The Fly, Duffy noted that higher B2B revenue is cutting the top line number by just a hair and hurting profitability.

In other words, if Birkenstock’s DTC had grown as fast as B2B revenue in Q3, the numbers would have been slightly better. These unmet expectations caused investors to be disappointed by the record numbers.

What Should Investors Do With Birkenstock Shares?

Birkenstock shares trade at about 70 times its earnings. That’s a high valuation for most stocks, and it’s especially high for a shoe stock. Now, Duffy doesn’t think the valuation is too high as Birkenstock continues to grow at a double-digit rate. But it’s enough to give many investors pause.

I will say this, though: Shoe stocks often trade at cheap valuations because investors don’t have a very good view of long-term trends. What’s trendy today might not be tomorrow — it’s hard to stay relevant in this space. But Birkenstock is older than the US, so I’d say it has staying power.

If Birkenstock can continue to grow at a double-digit rate, then perhaps Duffy is right that the valuation isn’t too high today. But investors should note that there are shoestring stocks with similar growth rates at more attractive valuations. So it may be best to sit on the sidelines with the Birkenstock for now.