Why Skullcandy, Inc. Shares Skyrocketed

Is this meaningful or just another movement?

Mar 7, 2014 at 1:40PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of headphone specialist Skullcandy, Inc. (NASDAQ:SKUL) soared a whopping 46% today after its quarterly results and outlook topped Wall Street expectations.

So what: The stock had pulled back in recent weeks on serious valuation worries, but today's Q4 earnings beat -- EPS of $0.13 versus the consensus of $0.09 -- coupled with upbeat guidance is quickly putting those concerns to rest. While earnings fell 69% and revenue sank 28%, the company managed to drastically cut sales to the off-price channel and enforce its minimum advertised pricing strategy online all while controlling inventory levels, giving analysts plenty of good vibes over its positioning going forward.

Now what: Management now sees full-year EPS of $0.10-$0.14 on sales growth in the mid- to high-single digits, nicely ahead of Wall Street's view of $0.10 in per-share earnings and revenue growth of 4.2%. "With our five key growth pillars established and a clear understanding of our consumer, where we will innovate and focus, and a segmented distribution strategy, it is now about executing," said President and CEO Hoby Darling. "We are confident we can achieve our vision of being a global audio leader while delivering profitable growth, increased shareholder value and living by our core values." Given Skullcandy's red-hot shares and forward P/E around 90, however, I'd wait for much of the excitement to fade before betting on it. 

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Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. 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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