Fossil CEO Buying Up Shares, But Should We? (FOSL)

| About: Fossil, Inc. (FOSL)
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Kosta Kartsotis, the chief executive officer of fashion accessory company Fossil (NASDAQ:FOSL), apparently thinks his employer’s stock is a buy. Recent regulatory filings disclosed that he has entered into a trading plan to purchase shares of FOSL. The Wall Street Journal reported that he has already purchased 250,000 shares and that according to Bill Baldwin of Baldwin Anthony Securities the plan allows for the total purchase of 500,000 shares.

At a recent price of $22.60 a share, 500,000 shares would cost $11.3 million. That’s enough to grab our attention and try to figure out what’s inspiring the buying. But even without it, Fossil is interesting. Thirty-one percent of shares are insider owned so management is motivated to see the company succeed. With $88.6 million in cash and $15.4 million in debt, the balance sheet seems quite safe. Sales growth has been spectacular, from 12/96 to 12/04, in millions of dollars: 206, 245, 305, 419, 504, 546, 663, 781, 960. During the same period net income grew nicely and shares outstanding increased by only 6%, leading to long term historical EPS growth. With a $1.6 billion market cap, the company still has plenty of room to grow.

Despite all these attractive features, we can’t say that we love the valuation. The trailing PE is 18.4 and the forward PE is 15.9. Price to book is 2.85 and EV/EBITDA is 9.7. Those multiples are certainly not outrageous, but certainly not screaming cheap either. If you are willing to assume that growth will continue or that Mr. Kartsosis knows what he’s doing, perhaps it’s worth paying up.

FOSL 1-yr chart:

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