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Why Skullcandy, Inc. Shares Skyrocketed

By Brian D. Pacampara, CFA - Mar 7, 2014 at 1:40PM

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Is this meaningful or just another movement?

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. ( 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. 

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.

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