Why You Should Consider Fossil Ahead Of Earnings

| About: Fossil, Inc. (FOSL)

Summary

FOSL has beaten both its own guidance and analyst estimates in each of the past 4 quarters.

Long term, revenue growth and large share repurchases should boost EPS even higher.

The company is trading at a discount to its 5 year average p/e and p/s ratios.

Fossil Group Inc. (NASDAQ:FOSL) designs, markets and distributes fashion accessories such as jewels, handbags, belts and sunglasses. The company has a market cap of $5.55 billion, and its shares are currently trading at $103.89, after a significant drop from the 52 week high of $134.99. Year to date, shares in the company are down 13.57%.

Fossil will announce the results for its 2nd quarter of fiscal year 2014 tomorrow. Over the past 4 quarters, the company has been able to beat analyst expectations by a decent margin every time, as can be seen in the table below.

Earnings estimate

Actual earnings

Difference

Q1 2014

$1.17

$1.22

4.30%

Q4 2013

$2.43

$2.68

10.30%

Q3 2013

$1.36

$1.58

16.20%

Q2 2013

$0.93

$1.15

23.70%

Click to enlarge

Source: Yahoo Finance

For the current quarter, analyst expectations stand at $0.96. This is $0.03 higher than last year's estimate for the same quarter. In the most recent quarterly rapport, the company stated it expected EPS for the 2nd fiscal quarter to be between $0.90 and $0.97. However, Fossil tends to be very conservative in its EPS guidance.

FOSL EPS guidance

Actual earnings

Difference

Q1 2014

$1.10 - $1.18

$1.22

$0.04- $0.12

Q4 2013

$2.26 - $2.46

$2.68

$0.22 -$0.42

Q3 2013

$1.30 - $1.37

$1.58

$0.21- $0.28

Q2 2013

$0.89 - $0.94

$1.15

$0.21 - $0.26

Click to enlarge

FOSL EPS Diluted (5 Year Growth) data by YCharts

FOSL is currently trading at a trailing twelve month p/e ratio of 15.65, which is a significant discount to its 5 year average p/e ratio of 17.4. Earnings per share have been growing rapidly in recent years, with a 5 year average diluted EPS growth rate of 26.56%. Average analyst EPS expectations for the current fiscal year stand at $7.14, which is 8.8% higher than last year's $6.56. The current price per share of $103.96 is only 14.5 times this year's expected earnings.

FOSL Revenue (TTM) data by YCharts

Fossil's 5 year revenue growth rate stands at a very impressive 15.54%. Last year's revenue was $3.26 billion, giving the company a price to sales ratio of 1.8, which is a significant discount to the 5 year average p/s ratio of 2.0. Analysts expect revenue to grow to $3.58 billion this year, putting the company at a forward p/s ratio of 1.6. Revenue is expected to grow to $3.89 billion next year, which would be a further 8.7% increase.

FOSL Shares Outstanding data by YCharts

Fossil doesn't pay a dividend, but it does return a lot of capital to its shareholders in the form of stock buybacks. In the most recent 12 months, the company spent $640 million on the repurchase of its own stock, which is very impressive considering the market cap stands at only $5.55 billion. The company has a very strong balance sheet, with $303 million in cash and equivalents and only $528 in long term debt. The company has $1.37 billion in current assets compared to only $390 million in current liabilities, implying excellent short term financial health. The quick ratio is also very decent, at 1.96.

Conclusion:

Fossil has seen some very impressive growth in revenues and earnings in recent years. Analysts expect this growth to continue in the current and next fiscal year. Looking at the valuations we can see FOSL is trading at well below its 5 year averages. The company has a very strong balance sheet with only a small amount of debt and over $300 million in cash and equivalents. In the 4 most recent quarters, FOSL has beaten both analyst expectations. Furthermore, it has given very conservative earnings estimates, which it has easily beaten. If the company is able to beat analyst estimates again tomorrow, I wouldn't be surprised to see the stock start to climb back up, after the 13.57% year to date drop.

Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. It is up to investors to make the correct decision after necessary research. Investing includes risks, including loss of principal.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.