What happened

Shares of Fossil Group (NASDAQ:FOSL) briefly hit 52-week highs on Monday morning of $13.61 per share, according to Yahoo Finance. Then, seemingly for no reason, the stock began to tank. It turns out a prominent watch designer signed a big deal today, but it was not with Fossil. This could be the cause of Fossil stock's huge drop. As of of 3:45 p.m. EST, the stock was down 26%.

So what

Giorgio Armani owns a luxury brand company named after himself. Included in his luxury offerings are watches and jewelry, a big part of Fossil's business. Fossil has a licensing agreement with Armani Exchange and Emporio Armani through the end of 2023, and it could hardly afford to lose it. In 2019, Armani accounted for 18.3% of Fossil's net sales.

A frustrated man places his hands on his head while staring at a down, red stock chart.

Image source: Getty Images.

According to fashion industry journal WWD, Armani is partnering with Parmigiani Fleurier, a luxury Swiss watchmaker, for a new line of watches. These watches aren't expected until November 2021, but Armani himself is excited about the new collaboration. He said, "In Parmigiani Fleurier, I've found the perfect partner." 

Now what

Customer concentration is something worth investigating when researching stocks to buy. If a company is too dependent on a single revenue source, it's a big risk. In Fossil's case, Armani isn't really a customer; rather, it's an important brand that Fossil's customers want. If it failed to renew a licensing agreement with Armani in the future, its revenue could fall. And considering its net sales are already down 28% through the first three quarters of 2020 relative to the comparable period of 2019, this isn't a company that can afford to lose more sales.

For now, Fossil shareholders can take solace that Armani is under contract until 2023, and the new watches from Armani and Parmigiani don't come out for another year. That'll give management time to address concerns in coming quarters.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.