Fossil, Inc. (NASDAQ:FOSL) is a diversified watches and accessories company, that includes merchandise such as sunglasses, leather goods, belts and handbags. Watches continue to be a fundamental revenue driver for the company, comprising 72% of sales in 2011. The company has experienced a couple aggressive stock swings recently and has traded in a wide range for the past year that had the stock as high as $139 and as low as $63. Worth noting is Fossil’s 1.9 beta.
In March there were a number of insider sales between $130-$135. As well, also during the first quarter many top hedge funds were dumping large portions of their Fossil stock, including Stephen Mandel of Lone Pine Capital, Chuck Royce of Royce & Associates, D.E. Shaw and Jim Simons of Renaissance Technologies (see all funds holding Fossil here). Shortly after, in May, the company’s stock price topped out at around $139 posting an all time high.
After hitting this mark, the company announced 1Q results, with earnings beating estimates with an actual EPS of $0.93 versus $0.92 estimates. At the time, analyst Eric Beder noted the materially negative guidance for 2Q that the company provided, with notable slowdowns in Europe likely to have an impact on Fossil going forward. The stock dropped over 35% in one day. However, during the second quarter it appears that one hedge fund found value in this large selloff. Ricky Sandler of Eminence Capital took a new position in the stock for almost $1 million shares that made up 2.55% of his 13F portfolio.
Then, in early August the company announced its third quarter results. Fossil posted EPS of $0.92 versus estimates of $0.80. After the third quarter earnings release, analyst Randal Konik noted that there is a global growth story with Fossil and put a target price of $115 on the stock. Fossil was up over 30% in one day.
Fossil competes with various accessory and apparel companies, including Gildan Activewear Inc. (NYSE:GIL), Movado Group, Inc. (NYSE:MOV), Citizens Holding Company (NASDAQ:CIZN) and PVH Corp. (NYSE:PVH). Fossil trades in line with its peers on a valuation basis. Fossil’s P/E is 19, and the average of its peers is 18.3, where Gildan trades at a P/E of 19.4, Movado at 22, Citizens at 13.2 and PVH at 18.5. Fossil does trade at the lowest PEG ratio, coming in at 0.9, while all the other companies trade around 1.3. All of these watch and accessory companies trade at a large variance to each other, with Fossil up almost 6% year to date, while Gildan is up 64%, Movado up 100%, Citizens up 6% and PVH up 33%. Fossil appears to have room for stock price improvements as it recovers from the sharp 2Q decline. Prior to its selloff in early May, Fossil was up over 60% year to date.
The company has aggressive plans to expand into the Asia-Pacific region, which only accounted for 15% of sales in 2011. Fossil currently trades at a forward P/E of 15, with the company’s 10-year average forward P/E being 17. The company has continued to gain market share, increasing sales at a CAGR of 16.2% from 2006-2011. With the April acquisition of Skagen, Fossil is expected to add $128 million in sales and $0.22 to EPS for 2012. Remaining 2012 and full year 2013 EPS estimates show a 15% increase in earnings. In closing, we believe the company has room to grow with respect to international sales, and that the May selloff may have been overdone.