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Skullcandy, Inc. Message Board

  • redheadinvestor Mar 4, 2013 2:26 PM Flag

    Watching SKUL, decided to wait for earnings

    I have never had any position in SKUL. There is not enough operational visibility or stability to more than guess whether ~$6 is FMV for a share. I'm an investor, not a guesser. While the past is hardly a sure guide, the long case for SKUL has never been correct - it's one of the worst performers in its index (a fact, not a bash). Meanwhile, with management, it's clearly pay for nonperformance.

    Ignoring risk adjustment, I could be wrong. Delayed earnings (usually a red flag) could blow out and send SKUL to $10 (who knows). But on a risk-adjusted basis, I'm comfortable taking the "miss the party" risk here. This might be a kind of confirmation bias, but after the parade of Seeking Alpha retail longs who have been wrong every time, I'm skeptical that I'll be the correct long the day I decide to show up from nowhere (after DD of course) and buy.

    SKUL is not dead (heh) but it has weaknesses: weak sales, growing SG&A and inventory, schooled by Beats, not adequately responding. Its means of response are limited due to the ethnic skew of the brands / headphone-intensive entertainment industry. The Dre space is bigger and better than the X Games space, end of story. Was, is, and will be going forward. WMT and Asia are easy things to say.

    SKUL also has only a quasi-proprietary position in a consumer double-discretionary (young people with scant funds disproportionately consume headphones, a significant chunk of the buyers are wallet-pinched parents, jeopardizing demand more). I'm also max NT bearish on the gaming space for similar reasons. It's a supersaturated nowhere space with an AAPL entry threat. "Great"

    As a potential investor I want to see results, not hipness or speculation. I feel negatively about any debt issue to buy back shares unless the cash generation (= results) is rock solid. (I am long a S&P 500 equity that has added new debt and is aggressively buying back shares, but it's a cash superstar with little risk to that cash flow).

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    • redheadinvestor Mar 8, 2013 11:03 AM Flag

      I got a lot of flak for posting this before earnings. Looks like some Motley Fools rushed in where some angels feared to tread. By the way, at 5.18, I'm still waiting. That conference call... ...Wow.

      • 1 Reply to redheadinvestor
      • redheadinvestor Mar 8, 2013 11:10 AM Flag

        Let's see. I cited:

        - Delayed earnings. Yep, that was a red flag.
        - The fact that the SKUL long case has never been right. Yep, true that.
        - The fact that SKUL is not dead. I admit, that's also true.
        - Weak sales... ...just got weaker (their strength was an illusion)
        - Competition... ...still dominant over SKUL
        - Overall market positioning... ...needs work
        - Gaming space... ...not riding to the rescue
        - Share buyback = idiocy
        - I want results... ...Good thing I insist on results.
        - Cash-generating companies are good to own

        Hey Astral Tsar and lesspheus, want to throw another snowball at my head? Or are you too busy probably averaging down, since "it can't go lower?" Who's the dummy now?

    • In spite of the weak arguments from Astral and Less, I'm still long Skul. I'm thinking all the bad news is out and the later earnings release doesn't disclose more bad news. It was not delayed as no date was ever set...just later than most companies release date. The technicals are weak, but am hoping fudamentals start taking over, although we need to hear some positive comments on the call.

      I would disagree that sales are weak. Actually quite strong...which makes this company even more of a head scratcher. I agree the problem is SG&A...but don't you think that's an easy fix? Much easier than trying to grow the brand and sales which they have had a good deal of success. And inventory grows with sales....just look at any retailer. Not saying it can't get better, but that trend is not a sure signal of weakness.

      Sure Beats is the king of over the ear headphones. But the headphone market is growing fast and there is plenty of room for 4-5 brands. Find your market niche and make a profit. I'm sure Under Armor is not unhappy about being behind Nike. Or Honda behind Toyota. And Skul is #1 for earbuds.

      I think Skul is targeting the budget conscious consumer as compared to many others. Not a whole lot of compeitiion in the 50 -100 price range. And they've got products in the cheaper range as well. I think a very bad move to compete in the 150+ price range

      I think the great concern is the unknown competition...Apple, Google or anyone else that may way in with some new innovation. Maybe wishful thinking, but if these gorillas wanted a jump start, not sure why they would gather up their loose change and buy a Skul. I mean these guys have so much cash and I see only upside to such an acquistion...what's their downside. Coke should have bought Monster Energy and still could.

      But I totally agree, investors need to hear some positive news on the call before jumping back in. But I still think there is to much over reaction. In summary, alot of people like Skul and that matter

    • redheadinvestor Mar 4, 2013 2:34 PM Flag

      Note: I could be wrong about my other investment too. I've been right so far, but that could change. But at least in that stock, I can point to vast, tangible cash flows that would have to massively dry up for me to be wrong.

      Here, I can't do that. That's one reason SKUL has been a shorty crushdown-party stock. It's totally defenseless (and now leaderless), and shorty knows that. Worse, it's a defenseless Seeking Alpha darling, and that's always $$$ for shorty, since that guarantees a steady stream of retail suckers who think at 15, at 12, at 9, at 7, it just can't go down more, it just can't. Well, yeah. It can. I'm afraid enough that 6 isn't the floor that I'm waiting for earnings.

      When companies are cash-rich, cash-generative, dividend-paying, and shareholder-friendly, they're much harder to profiatbly short - so many companies are none of those things, that shorty will just go elsewhere. Such as to SKUL.

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