Fossil Group's (FOSL) recent run-up from the mid $3 range in August to $13 last week had a hiccup on Monday that sent the shares down 27%.
The stock's recent rise has been fast and furious, fueled by very solid third-quarter results, when the company announced its biggest bottom line since the fourth quarter of 2018. I'd like to say that Fossil beat consensus analyst estimates for the quarter, but I can't because no analysts currently cover the name. More on that later.
Monday's fall occurred on about three times the normal average volume. Initially, there was no news on the drop, no reasons given, which is not all that surprising given lack of coverage by the analyst community. I figured it might just be some profit-taking following the stock's great recent run, but it later became apparent that investors might have been spooked by a piece of news related to the company.
Tuesday's press release by Fossil all but confirms the culprit: the announcement by long-time partner Armani Group that the latter announced a collaboration with luxury watch maker Parmigiani Fleurier. This may have been interpreted as the end of Armani's 23-year relationship with Fossil.
According to last year's 10-K filing, Fossil's current licensing agreement with Armani ends in three years, on Dec. 31, 2023, and based on statements by both Armani and Fossil executives in the press release, there's no reason to believe that the relationship will not continue.
So, I attribute Monday's drop to investors that have made a lot of money on FOSL stock in recent months, looking for any potential reason to take some profits, whether or not the Armani news will have any meaningful impact on Fossil.
The fact that there is no analyst coverage makes the stock a bit more volatile, in my humble opinion, both on the upside and downside. There simply is not a great deal of interpretation of results, news and trends. That is not a negative; it just leaves investors to do their own homework and make their own interpretations. In some situations, this allows for the discovery of interesting situations that have not been picked over, and the ability to be "early to the party." However, the downside is that after a run-up, a relatively minor piece of news can have a major impact, as we saw on Monday.
Was FOSL worth $13 a share on Monday when the Armani news hit, or had it run too far too fast? Was the stock really worth more than $130 a share in 2012, $47 in 2016, or $30 in 2018? What is FOSL really worth today? Inquiring investors want to know, and that's part of what makes this all so fascinating, and risky, I might add.
This is my second go-around with FOSL, which is not something I normally do. Usually, once I move on, I'm done with a name, especially retail, a sector in decline, fraught with risk. However, today's FOSL has a better balance sheet than when I owned it previously, with healthy amount of cash ($324 million), and significantly less debt ($239 million versus $446 million at year-end 2017).
Of course, if the customers don't show up, none of this will matter.