As a value investor, I seldom buy back into a name I've previously owned once I've closed the position. Typically, either a name reaches or exceeds what I believe it is worth, or it does not work as expected, crashes and burns and I move on. However, I am now taking another look at specialty retailer Fossil Group Inc. (FOSL) .
I'll spare the long history, but I somewhat uncharacteristically took a position in the accessories retailer in early 2018 in the $8.50 range, thinking it might double or better over time, and sold it last summer for $29 and change. Fossil rose more quickly than I thought it would, greatly exceeding my expectations, so I closed the position after a six-month hold. That is not typical, for sure, and sometimes it is better to be lucky than good.
Since then, it has been all downhill for Fossil, which closed at $13.90 on Tuesday, down almost 57% from its 52-week high of $32.17 last June. There simply isn't a great deal of excitement for Fossil at this point.
Its fourth-quarter earnings, announced Feb. 13, did not help. Fossil missed earnings estimates by eight cents a share, reporting EPS of $1.01; it also missed big on revenue, which totaled $787 million versus the $905 million consensus estimate. Interestingly, shares opened the following day down 17%, but ended the day down just 3%; it appears the market initially may have believed the earnings shortfall was wider than it actually was. However, shares have slipped since then.
Fossil shares don't appear cheap based on next year's earnings estimates, trading at about 37.5x estimates. However, the disparity among the individual analyst estimates is fairly wide, which is reminiscent of the path the stock has taken since early 2018.
The market just can't seem to decide whether Fossil has legs, and brick-and-mortar specialty retail is generally viewed with much disdain. The question is not whether Fossil exists 10 years from now in its current form, but whether the current price undervalues the name in its current state.
Fossil currently trades at just under 2.6x net current asset value (current assets less total liabilities). The company ended 2018 with $402 million, or about $8.16 per share, in cash. It does have $396 million in debt, but the current enterprise value (market cap plus debt minus cash) is just $675 million. While acquisition talk has faded over the past year, which may account for the stock's big drop, it could still make for a rather interesting takeover for a bigger fish, and the brand name is pretty well known.
I've been in several Fossil stores since December 2017; I even made a Christmas purchase there in 2018. Great merchandise, although seemingly a lot of wasted space in some of the stores I've visited. Still, the name is back on my radar, and I must decide whether I want to revisit owning it.
