Is It Time to Dump Fossil Stock? Definitely Not
Famous watch and handbag manufacturer Fossil Group, Inc. (NASDAQ:FOSL) reported its third-quarter results on Friday and the performance turned out to be way too gloomy for what FOSL stock investors were expecting. Fossil managed to beat on earnings, but the company missed on revenue estimates. However, the biggest dent in the FOSL stock price came from its dismal guidance for the next quarter.
But I believe FOSL stock could make a comeback. Here’s why…
One Business Segment FOSL Stock Is Relying On
Fossil has undoubtedly had a tough quarter, but the main culprit was its one business segment more than any other. The biggest blow in its revenue was caused by its watches business, which largely underperformed company expectations. However, Fossil management saw it coming and had prepared well in advance to tackle the declining watch business.
Fossil is now acquiring smartwatch startup Misfit for $260 million, which is a pretty decent price tag for the value this company is expected to bring. Looking at this quarter’s results, it’s clear why Fossil has decided to go for this technology acquisition.
The technology world is expanding at hypersonic levels, with the millennial generation emerging as the biggest buyer of tech devices. Traditional watches appear too “old school” to the newest generation of consumers. Any company that is not evolving its business strategy with the changing times is bound to become history. Fossil has realized that to boost its sales, it must bring in the young technology lovers who don’t wear traditional watches; hence, its Misfit acquisition.
The company’s move comes after having a successful launch of its first-generation wearable technology watches, called “Q,” that are powered by the namesake app that keeps track of the user’s activity. The product was so successful this quarter that it sold out of its stock in the latest quarter. It’s clear why Fossil saw great value in Misfit’s smartwatch business.
FOSL Stock Could Get Bump from Misfit Acquisition
Although small, Misfit is emerging as a solid competitor to the biggest player in the wearable fitness and tracking devices industry, Fitbit, Inc. (NYSE:FIT). Misfit’s tracking devices come with more features than the Fitbit devices and at a price point much lower than Fitbit’s. Now under Fossil’s wing, it wouldn’t surprise me if the Misfit brand soon grew to take over Fitbit’s share of the industry.
Having said that, Fossil must be aware that this niche is fast becoming overcrowded and its Misfit acquisition is just the first step to getting into a competitive and quick-moving market. Numerous tech companies, including Apple, Inc., Jawbone, Samsung Electronics, Xiaomi, Microsoft Corporation, and Garmin, are all gunning for the biggest market share. And it’s not just the technology companies that are investing in this niche. Luxury watchmaker Tag Heuer is also entering the market through its partnership with Alphabet, Inc. to launch an “Android”-based smartwatch.
Now, the only way Fitbit has been surviving as the market leader thus far is due to its strong brand recognition coupled with a solid software application. Fossil will necessarily have to work on Misfit’s mobile apps for all platforms, since they currently lag behind Fitbit’s ratings on all app stores.
Looking at technicals, FOSL stock has been caught in a downward spiral this year, consistently losing value on the chart. The stock took its biggest plunge on Friday, after its lackluster third-quarter earnings report was released. However, the sharp decline is not fully justified, as the future is not as bleak as the Street may think.
Chart courtesy of www.StockCharts.com
It is understandable, though, that we witnessed this massive sell-off. Institutional holdings for FOSL stock stand at a whopping 103%, which means a good number of its stock is currently being shorted. Such huge institutional holdings are usually bad news because when the funds start selling the stock, the supply far outweighs the demand for a certain period, putting downward pressure on the price.
Bottom Line on FOSL Stock
Fossil had a reasonable quarter for the leathers and jewelry businesses, both of which were up, ignoring currency translation. The watches segment is also set to improve with the newly acquired tech products in the company’s portfolio.
The smartwatch industry is picking up fast and might bring in some great growth numbers for Fossil’s latest venture in the wearable technology and fitness tracking devices segment, which will definitely help bolster its top-line growth figures going forward.
I remain hopeful that FOSL stock will see good days again.