Former retailing high flyer Fossil (FOSL) was kneecapped in early May after missing revenue estimates and giving poor guidance due to its European operations. The company plunged some 40% in reaction to that news and has not been able to stage a rally since. However, I think the sell-off was overdone. Europe does represent a little over 25% of sales, but the company has a strong record of growing earnings and revenues even in the difficult economic environment of the past five years. Several insiders bought shares after the sell-off and the stock is offering compelling valuations for long term growth investors.
6 reasons FOSL is offering a good entry point at just over $68 a share:
- Three insiders purchased just under 10,000 shares in May at higher prices.
- The 11 analysts that cover the stock have a $90 median price target on FOSL, 30% higher than the current price of the stock.
- The stock is selling in the bottom of its five year valuation range based on P/E, P/S, and P/CF.
- The company has a solid balance sheet ($240mm in net cash) and the market seems to be discounting its growth prospects (Five year projected PEG of .67).
- The company has beaten earnings estimates for twelve straight quarters and is selling at a forward PE of just over 11, a discount to its five year average (16.4).
- The recent sell-off is giving investors a chance to buy a company that are grown earnings and revenues at a 26% and 13% average annual rate over the past five years at a bargain price.
The stock looks like it is trying to bottom here after that huge 40% sell-off in early May (see chart).
(Click to enlarge)
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FOSL over the next 72 hours.
