I typically do not revisit past names in which I've taken a position, and have ultimately moved on from. I don't do this out of principle, but once a situation plays out, it usually has played out.
This is especially true of the reclamation projects -- also known as dogs with fleas -- that I am often drawn to. When these plays work, it means that the market has re-embraced a story that it had previously shunned. Often, I won't get all of the upside, but enough. Once the name is no longer cheap, I'll let the growth crowd take over, and run the ball the rest of the way.
Occasionally, however, a name will sputter after I've closed the position, to the point that it re-enters my radar. Lightning does not often strike twice in these situations, but it can.
A good example of this is specialty retailer Fossil Group (FOSL) . My technician friends would likely say how awful the chart looks, and I would agree. I took an initial position early in 2018, spread over a few purchases. I got lucky there: The name took off quickly amid takeover talk, and at the time, the market had indeed overly punished the name. I was out by June. That's an incredibly short hold for me, but with an average cost of around $8.50 per share, it was a no-brainer to close out in the $29 range.
It's been all downhill since then for FOSL, the stock, that is. The company, in my view, has actually made progress in some areas. But some earnings misses, and specialty retailer malaise in general, have combined to push the stock back below $9. Hate to say it, but I am intrigued.
When I took a position in 2018, FOSL was an $8.50 stock, but had $485 million in debt. At the time the company's Enterprise Value, or EV, was around $730 million. (Remember, EV is market cap plus debt, minus cash.) On the same basis now, FOSL's EV is now about $568 million. The company has been aggressively paying down debt. Total debt now is $264 million, which is down from $485 million when I first bought shares. I am not including operating leases in the number; they now are required to be shown on the balance sheet, but were not in 2018. Cash stands at $148 million, and was $167 million back then.
The company's third quarter was rough to say the least: Revenue of $539.5 million was below the $558 million consensus, and the 37-cent loss per share (normalized) was well off the expected earnings of 9 cents. Markets reacted by sending shares down 21% last Thursday, and an additional 10% on Friday. Year-to-date FOSL is down 50%. With investors seeking to offset 2019 gains with losses, it may fall further as the end of the year approaches.
Current analyst estimates for the ever-important fourth quarter are calling for revenue of $719 million, and earnings of 77 cents. But "consensus" estimates for next year have gone negative, with the two analysts currently weighing in predicting a loss of 8 cents on revenue of $2.17 billion.
Whatever you think of FOSL, it's a certainly leaner than when I first owned it. But I'm not in a hurry however.
