Why You Shouldn't Buy This Rally

Skullcandy (Nasdaq: SKUL  ) sent investors on a ride the last few days, dropped 11% on Thursday and then Popping more than 9% today. 

The company has compelling bull and bear cases for it. One on hand the company is trading at only 16 times earnings but has 60% earnings growth. Their prime position as a lifestyle brand also allows them to achieve impressive margins considering the space they operate in. 

There is also a lot to dislike as well. The economics of the consumer electronics industry are brutal. Even the most sought after devices can quickly become commoditized and pricing power quickly evaporates. Skullcandy also sits on a large inventory which could quickly become discounted if sales are softer than expected. 

Also, Apple's iPhone 5 launch could be bad news for them as well. With still unproven but redesigned and reportedly superior headphones part of the iPhone bundle, many smartphone users may lose the reason to upgrade to an aftermarket product.

If you'd like to more about Apple's iPhone 5 launch and the implications for their company and competitors we’ve created a brand new report that details when to buy and sell Apple. To get started, just click here to read more now.

Austin Smith owns shares of Apple. The Motley Fool owns shares of Apple, Google, and SKULLCANDY INC. Motley Fool newsletter services recommend Apple, Google, and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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