So Piper Jaffey downgraded Skul to nuetral with a price target of 7....a drop from 15. These decreased price targets have been huge lately, suggesting from a fundamental perspective they have significant concerns and know something we don't....which would not surprise me.
I understand the competition, but what has really changed in 6 months to trigger such a sentiment change? Market share and sales are increasing, offset by some margin compression, but headphone demand is only increasing worldwide. Are the analysts just wrong because it's a new sector that they are misunderstanding?
What am I missing?
Per the release today....
The Skullcandy brand does not appear to be gaining or maintaining share at key domestic retailers, and when coupled with the potential for industry consolidation causing higher discounting, results in a downward bias to our estimates.
If they are correct, how would they know this information.....channel checks? I followed up with about 10 random stores and got opposite answers...granted only a very small sampling. I guess they could be in direct contact with Target and Best Buy corporate purshasing to gain some knowledge of sales numbers.
I own another stock that was downgraded by several firms a week before earnings. Jeffries in particular lowered their price to $28 while this stock was trading in the low 30's. These downgrades all came last week and the stock reported this past Tuesday after hours. The name of the stock is CREE and they beat on both top and bottom lines and are now trading in the low 40's, $41.50 to be exact and is a new 52 week high. How could these guys be so wrong a few days before earnings? I don't trust analysts!
A lot of these analysts are giving a sell rating so buyers will do just that and they can get the stock at a discount and it pumps up a few %. They make money and the little guy loses. Nobody really knows even the insiders don't know how the market will react.
We see limited downside in SKUL shares at this time given low valuation and negative sentiment, but we would wait for signs of stabilization before initiating or increasing positions.
Sentiment: Strong Buy