Ashraf Eassa
Long/short equity, contrarian, independent research, tech

Skullcandy: Is There Hope For This Former High Flier?

I believe that shares of Skullcandy (NASDAQ:SKUL), a former high flying personal audio equipment designer, are worth examining in light of the fairly protracted share price decline from its IPO. The mission here is simple: was the most recent earnings report the catalyst for a capitulation bottom with a significant opportunity on the long side to ride the recovery, or is the business in fundamental decline?

What Is Wrong?

While metrics such as EPS can be manipulated to some degree, there is only one metric that gives an accurate metric of corporate health: free cash flow. Unfortunately, since IPO, Skullcandy's FCF has been on a downward spiral:

SKUL Free Cash Flow TTM data by YCharts

While revenue has...

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