Skullcandy (SKUL) Becomes the Most Heavily Shorted Stock on the NASDAQ
Headphone and smartphone accessory maker Skullcandy (SKUL: Charts, News) recently received the dubious distinction of being the most heavily shorted stock on the NASDAQ. While this should be discouraging news for most companies, an increasing number of analysts are turning bullish on the stock, believing that the stock is set to rally strongly on the inevitable short squeeze.
Like its high successful industry peer Zagg (ZAGG: Charts, News), Skullcandy is dependent on the booming smartphone and tablet industries. The global accessory market for these devices was worth $26.5 billion in 2010. Analysts project this market to grow to $50 billion by 2015. Skullcandy has focused heavily on appealing to American sports fans with its branded products. Many analysts believe that Skullcandy is following Nike's (NKE: Charts, News) example by attracting top name endorsements, including Dwyane Wade, Kevin Durant and Derrick Rose. The company has also increased its female appeal with a "runway model" series featuring Kate Upton. Skullcandy has also been fast to refresh its headphone product lines. Two new styles planned for this quarter include the redesigned Hesh style and the Cassette style headphones, the latter of which is foldable with removable speakers. Skullcandy products are found in Target (TGT: Charts, News), Apple (AAPL: Charts, News) Stores, and other major retailers.
During the first quarter, Skullcandy posted earnings of 4 cents per share on revenue of $53 million. Analysts had projected earnings of 4 cents per share on revenue of $44 million. Although this matched profit expectations and beat revenue forecasts, professional short sellers quickly stressed the fact that this was a decrease from the 5 cents per share it posted a year earlier, and that gross margins slid from 50.8% to 48.8%. Excluding lawsuit related expenses, however, Skullcandy earned 5 cents per share, matching prior year earnings. Despite the company's solid numbers, short sellers managed to drive the stock down from $17.50 to $11.95 after a single month.
With 10.3 million out of 27 million outstanding shares being sold short, Skullcandy shares may be set for a big rally soon. All eight analysts who cover the company have a "buy" rating on shares, with a price target between $22 and $28, far above the $13 per share it trades for today. Meanwhile, institutions own 18.9 million shares, while other major stockholders hold 10.2 million shares. Revenue has steadily risen over the past three years - $118 million in 2009, $160.5 million in 2010, $232.4 million in 2011, and a projected $300 million in 2012. The company earned $1.00 per share in 2011, and projects earnings between $1.15 to $1.20 per share in 2012. In 2013 it anticipates earnings of $1.43. In the previous quarter, 14 institutions purchased an additional 4.4 million shares. To top of all this bullish sentiment, two insiders recently purchased over $500,000 in company stock.
Many analysts have compared Skullcandy's steep profit and sales growth to Lululemon Athletica's (LULU: Charts, News) strong performance. While Lululemon trades at 44 times forward earnings, Skullcandy trades at a mere 8. With a 5-year PEG ratio of 9.3, Skullcandy's shares are significantly cheaper than Lululemon's. At current prices, Skullcandy's downside is fairly limited, and brave traders may be able to take advantage of the upcoming reversal.
Other News About SKUL
Skullcandy: Perpetual Squeeze Coming Skullcandy shares are poised to rally on a massive short squeeze.
Interview With Skullcandy CEO Jeremy Andrus Skullcandy's CEO discusses the company's future.
Other Stocks in the News
McDonald's sells debt to fund China expansion McDonald's plays catch-up with Yum! Brands in China.
4 ways Apple has changed under new CEO Can Tim Cook live up to the legend of Steve Jobs?
Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.