Fossil Group Stock Has Been Pressured Due to Weak Fundamentals



Fossil’s 1-year total return

Fossil Group’s (FOSL) stock opened 28% higher than its closing price on February 16, 2016, as it exceeded expectations. However, if we look at its post-rally price return over the last year, the stock has returned -47.3%.

This return underperformed the broad consumer discretionary sector (XLY), as well as the broad market S&P 500 Index (SPY) by quite a margin, as can be seen from the below chart.

As can be seen from the above chart, over the last year the stock of Fossil Group (FOSL) has been declining due to the company’s shrinking top line. Fossil Group faces tough competition from its traditional competitors as well as the impact of newly launched smartwatch companies.

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Valuation multiples

The current PE (price-to-earnings) ratio of Fossil Group (FOSL) is 8.64x. This seems fairly cheap when compared to its peers in the luxury goods industry—Coach (COH), Kate Spade (KATE), and Tiffany (TIF)—that are trading at 20.75x, 18.48x, and 16.83x, respectively. Fossil Group’s closest peer of the company in the global arena, Swatch Group (SWGAY), has a current PE ratio of 17.02x. The industry as a whole is trading at a median current PE of 20.0x.

Fossil Group’s forward PE is 14.7x, which suggests a further decline in its earnings over the next four quarters of ~37.0%. In the next article, we will see what Wall Street is expecting from the stock over the next 12 months.


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