Shares of Fossil (Nasdaq: FOSL ) hit a 52-week low yesterday. Let's take a look at how the company got there to find out whether cloudy skies remain on the horizon.
How it got here
Fossil's year had been going rather well... and then its first-quarter numbers came out. Now it's one of the few upscale retail stocks to be firmly in the red for the past 12 months:
Fossil got fossilized by jittery investors over reduced guidance. As fellow Fool Sean Williams pointed out after the drop, many of the company's peers got swept up in major panic selling -- over what amounts to full-year estimates that undershot the Street's by less than 5%. Upscale watchmaker Movado Group (NYSE: MOV ) had its own mini-flop, and Coach (NYSE: COH ) also got doused with cold water on the news. As you can see, it's been a rather volatile month for luxury goods. Global economic fears aren't helping investor confidence, and Fossil's "weak" guidance just looked like a dead canary in the retail coal mine.
What you need to know
Fossil wasn't quite cheap before, but after its crash, it sports one of the lowest valuations in the luxury sector despite having one of the best net margins this side of Coach:
3-Year Annualized Earnings Growth
Net Margin (TTM)
|Ralph Lauren (NYSE: RL )||20.0||12.4%||9.9%|
|True Religion (Nasdaq: TRLG )||15.6||(0.7%)||10.7%|
Source: Yahoo! Finance. NM = not material because of negative earnings.
Not only does Fossil look cheap, it also seems to be left for dead. Its earnings growth bests its peer group for consistency as Movado spent its last two years in the red. Clothing maker Ralph Lauren saw more muted gains, and True Religion has managed no real earnings growth at all in the past three years.
Recent skittishness represents a big shift in sentiment from earlier this year, when Fossil's stock was a highflier on multiple occasions. Longtime Fool Rick Munarriz isn't sold on Fossil even at this lower valuation, noting that millions are now using their smartphones as timepieces. Fashion-conscious investors might scoff at that idea and may find a great buying opportunity in the wreckage. Fossil had a big fall last summer as well and recovered nicely before May's drop. I wouldn't ignore the potential that this is a repeat seasonal shift, since so much of 2011's politically driven market chaos seems to be repeating itself this year.
Where does Fossil go from here? That will depend on consumer sentiment, which will be heavily influenced by economic trends. It's always about the economy these days, isn't it? The Motley Fool's CAPS community hasn't abandoned Fossil, holding its four-star rating after the crash. I'm one of those with a long-term outperform CAPScall, and I'll be maintaining it for at least another year. This bit of bad news just doesn't justify the stock's horrible drop, in my Foolish opinion.
Interested in tracking this stock as it continues on its path? Add Fossil to your watchlist now for all the news we Fools can find, delivered to your inbox as it happens. If you're looking for another retail opportunity to invest in, The Motley Fool's found one so appealing we've named it our "Top Stock for 2012." Find out more about this great stock in our free report -- click here for the information you need.