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Alphabet Inc. Message Board

  • dariodbest dariodbest May 6, 2013 2:01 PM Flag

    SHORT WILL COVER SOON...SHARE BUY BACK $7SOON..SKULL CANDY

    Skullcandy is a designer, distributor, and marketer of audio headphones and various accessories. Skullcandy has a market cap of $143 million with a net cash position of $34 million, which is almost 24% of Skullcandy's market capitalization. With a TTM PE ratio of 8.15 and a forward (2014) PE ratio of 12.9, we see Skullcandy shares as being undervalued. Skullcandy is selling for book value and has an Enterprise Value/EBITDA ratio of just 2.84.

    Our interest in Skullcandy is primarily focused on Skullcandy's apparent plan to buy back up to $28 million in shares. With a fairly high short interest (22% of float), we believe that if Skullcandy is aggressive with its share buy back program it may cause a short squeeze. A short squeeze would be great for Skullcandy shares, in the short term, making the shares a nice short-term trade candidate. Also, we like that Skullcandy is a small company with attractive assets selling at a compelling valuation. These situations sometimes lead to a company being acquired by a larger competitor or by a private equity firm. With the catalysts of a possible short squeeze or a possible buy out, we believe that the market has overlooked Skullcandy and has not priced in these possibilities into the stock price. In our best-case scenario, we forecast that Skullcandy shares will rise 50% or more if there is a short squeeze or buy out. In our worst-case scenario, we forecast that Skullcandy will have a stable business that will maintain a relatively stable share price. We see this as a heads we win, tails we do not lose much type of investment.

    Sentiment: Strong Buy

 
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