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Market Overreaction on This Headphone Distributor: Skullcandy Inc (SKUL), Sony Corporation (ADR) (SNE), Harman International Industries Inc. (HAR)

It seems to be quite cheap now

At a current trading price of around $5.20 per share, its total market cap is around $143 million. The market is valuing Skullcandy Inc (NASDAQ:SKUL) at only 2.6 times EV/EBITDA. Compared to its peers including Harman International Industries Inc. (NYSE:HAR) and Sony Corporation (ADR) (NYSE:SNE), Skullcandy has the cheapest valuation. Harman, at $44 per share, is worth more than $3 billion on the market. It has the most expensive valuation at 6.6 times EV/EBITDA. Sony isthe biggest company among the three, with nearly $15.7 billion in the total market cap. At around $16 per share, Sony is valued at nearly 4.4 times EV/EBITDA.

Interestingly, Skullcandy generated the highest operating margin at 14%, while the operating margins of Harman International Industries Inc. (NYSE:HAR) and Sony Corporation (ADR) (NYSE:SNE) were 7% and 0.5%, respectively. Skullcandy delivered quite a high return on capital among the three at around 40%. The return on capital of Harman was 40.6% while Sony generated net losses. Among the three, Sony has the highest forward dividend yield of 1.9% while Harman pays to existing shareholders a 1.4% forward dividend yield. Skullcandy Inc (NASDAQ:SKUL) does not pay any dividends to shareholders.

In the first quarter of 2013, the company expected to generate a loss between $0.25 to $0.30 per share. Interim CEO Rick Alden admitted: “We have not kept up with all the changing trends nor have we led with our own innovations.” Indeed, I would expect the similar downtrend in the short-term for the company, indicating by the wider divergence between its operating cash flow and its net income.

Foolish bottom line

Skullcandy Inc (NASDAQ:SKUL) is definitely not a good stock to hold for a long term investor. However, with a historical high operating margin, low leverage, and low valuation, this company seems to be a good pick for opportunistic investors. If the company can turn its business around, its stock price may advance significantly.

The article Market Overreaction on This Headphone Distributor originally appeared on Fool.com and is written by Anh HOANG.

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