Will Brand Building and Innovation Add Leverage to Fossil’s Valuation?


Nov. 20 2020, Updated 2:14 p.m. ET

Valuation multiples

The valuation of a stock is a prime determinant for investors. Here, we’ll compare Fossil’s (FOSL) valuation with its peers using the 12-month forward PE (price-to-earnings) ratio. This ratio is the ideal ratio to gauge how much above or below a stock is trading compared to its earnings.

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Fossil’s PE multiple

On August 2, Fossil was trading at a PE multiple of 12.9x. Fossil’s valuation multiple has fallen by 9% since the announcement of its 1Q16 results. The Consumer Discretionary Index and the S&P 500’s PE multiples were at 17.7x and 17.3x on August 2, 2016. Fossil’s valuation numbers were affected mainly by the decline in its top line and bottom line during 1Q16, the rising debt levels, and a weak outlook.

Luxury goods retailers (RFV) like Coach’s (COH) and Ralph Lauren’s (RL) PE multiples stood at 19.0x and 17.1x, respectively, on August 2, 2016. Michael Kors Holdings (KORS) was trading at a PE multiple of 10.7x as on August 2.

Strategies to improve its sales

Fossil is working to attain a commanding position in the traditional watch business and a strong position in the potential $4 billion wearable devices business. The company is working to incorporate the Misfit activity tracker and wearable technology across every brand and introduce new wearable devices. Fossil acquired Misfit in late 2015 to strengthen its presence in the wearables category.

In March 2016, Fossil announced that it will offer over 100 wearables products including display and non-display watches and trackers across several brands in 40 countries by the 2016 holiday season. Fossil has huge expectations from Fossil, Skagen, Michael Kors, and Kate Spade brands. The company is focusing on growing its European and Asian segments and its women’s leather business. Fossil is also working towards innovative watches and jewelry to drive its growth. The company’s strong brand presence and innovation coupled with style and the latest technology is expected to add leverage to the company’s prospects.

For more updates, visit our Consumer Discretionary page.


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