"Skechers USA (NYSE: SKX), a trendy California-based retailer, is a new buy recommendation on our 'hot list'," says John Reese, who selects stocks based on the criteria used by several legendary stock pickers.

In his always-fascinating Validea newsletter, the advisor explains, "Skechers gets approval from two of my guru-based strategies, those that I base on the writings of Peter Lynch and Kenneth Fisher." Here is his review.

"My Lynch-based model considers the firm to be a 'fast-grower' because of its 23.08% long-term growth rate (based on the average of the three- and five-year earnings per share figures).

"Lynch was perhaps best known for using the P/E/Growth ratio, which divides a stock's price/earnings ratio by its growth rate to identify growth stocks that are still selling at a good price.

"P/E/Gs below 1.0 are acceptable to my Lynch-based model, with those under 0.5 the best case. With a P/E of 10.99 and that 23.08 percent growth rate, Skechers has a P/E/G of 0.48, passing this critical Lynch-based test with flying colors.

Skechers USA (NYSE:SKX) designs, develops and distributes trendy footwear for men, women, and children. Oxfords, boots, sneakers, sandals and semi-dressy shoes are offered under the Skechers USA, Skechers Sport, Skechers Active and Somethin' Else from Skechers brands.

The firm surprised the Street last week, when it guided Q4 EPS to 28-31 cents (27 cent consensus), Q4 revenues to $295-$300 million ($262.31M consensus), Y06 EPS to $1.55-$1.58 ($1.51 consensus) and Y06 revenues to $1.196-$1.201 billion ($1.163B consensus). Management cited a 29 percent year-end increase in backlog, continued high single-digit comp store sales and strong retail sell-throughs for the optimistic view. The price popped on the news and then began formation of a bullish "flag" pattern. Stocks frequently exit a flag with a move in the same direction they were traveling when they entered it. In this case, that would be to the upside.

Brokers recommend the shares with three "buys" and two "holds". Analysts see a 21 percent growth rate, through the next year. The stock's Price to Sales ratio (1.31), Price to Book ratio (3.45), Sales Growth rate (21.36%) and EPS Growth rate (53.33%) compare favorably with industry, sector and S&P 500 averages.

The stock is one of those used to calculate the S&P 600 SmallCap Index. Institutional investors hold about 57 percent of the outstanding shares. Over the past 52 weeks, SKX has traded between $16.50 and $35.83. A stop-loss of $30.70 looks good here. Note that the firm is expected to report Q4 results in mid-February.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.