- CHART- know how to read charts. I firmly believe I can improve the price of buying or selling from an understanding of chart action.
Continues to stabilize after recent pullback and could be poised for a jump; +1
- ANALYSTS- read analyst reports but come to your own conclusions.
3 Strong buy, 5 buy and 4 hold (according to CNBC); +1
- INSIDERS- if the people that know the company the best are not buying it, why should you?
CFO, and other key directors purchased a total of 9800 shares at a price range of $72.86-$80.01 during the month of May 2012; +1
- MANAGEMENT DISCUSSION 10Q AND 10K- this is the only truthful thing you will read about a company. It’s composed by management, the auditors, and the firm’s lawyers. If all three of them can agree on the verbiage, it’s passed a big hurdle. Read it carefully. Pay particular attention to the Risks, Litigation, and Related Transaction sections. These are the things you will wish you had taken the time to read if something goes bad with your investment.
Fossil is still seeing strong growth; sales growth of 26.4% and 31.2% in 2011 and 2010 respectively with especially strong growth seen in the licensing section of their business. Operating margins increased to 18.5% in 2011 from 13.7% in 2010 with operating income increasing 77%. Fossil licenses to brands at multiple price points with strong reputability and brand equity such as Diesel, Adidas, Armani, Burberry, and Marc Jacobs. They plan to introduce new brands and engage in new licensing agreements to continue growth and with strong cash flows should be able to do so feasibly. They recently acquired Skagen Designs, Ltd. Most of their production is based in China; rising manufacturing costs may cut into margins. Europe makes up about 27% of sales, but they did grow by 22% organically in 2011. Reduced consumer spending in the EU could harm sales. Inventory turnover in 2011 was 2.62, indicating a stable management of inventory.
Q1 2012 indicated what could be the start of continuing deceleration in growth. After missing guidance many analysts have backed off on their ratings and downgraded the stock due to a less than favorable outlook in many of their main markets, namely Europe and Asia. While FOSL does still have potential upside, the recent pullback raises some red flags; 0
- RELATIVE PERFORMANCE- If the stock has a superior relative performance to the market in the short term
Strongly outperformed the market until an earnings miss at the beginning of the month; 0
- SECTOR OUTLOOK- buying a good stock in a bad sector can be a humbling experience
Cyclical consumer goods closely following the S&P; 0
- CASH FLOW- cash flow is more accurate than earnings. Earnings can be more easily manipulated.
Fossil has posted operating cash flows well over $200 million each of the last three years. Capital expenditures have seen significant growth in the same period. Free cash flows have declined because of this, but are still on average 9.42% of revenue over the same period; +1
- PEG RATIO- it’s good to find a company growing faster than it’s multiple.
0.68 (according to Yahoo! Finance);+1
- VALUATION- contrary to popular opinion, it does matter what you pay for a company. Check its discounted cash flow value. Buy it for less than what it’s worth, a 1, less a -1, about the same 0.
Undervalued even with a 0% projected growth rate according to model with a price target of $77.88. With a modest growth rate of 7.5%, the target rises to 97.33; +1
- CATALYST- what’s going to change the status quo?
Among younger demographics there are less and less people wearing watches as it is so convenient to use a cell phone to check the time. Watches make up almost 72% of Fossil’s revenue and if this trend continues then they could be looking at a decline in sales; -1
Who Cares About Wristwatches? by: Smart Advantage
“For the past several years, young people have fallen out of the habit of wearing a wristwatch. After all, who needs a wristwatch when you have a cell phone? Most young, tech-savvy people prefer to simply use their smart phones as their time pieces, without strapping an additional item on to their wrist.”
http://blog.smartadvantage.com/competitive-advantage-blog/bid/57188/Who-Cares-About-Wristwatches