The market has been going through a bit of a rough patch in the last few weeks, especially after France and Greece jumped to the far Left. Greece voted in Communists and neo-Nazis while France voted in a Socialist which is worrisome for Europe and the world financial system.
During yesterday’s session we saw quite a few dives such as MAKO Surgical Corp. (NASDAQ:MAKO) who was down 35%, Dendreon Corp. (NASDAQ:DNDN) was down over 21% and more. However, I want to turn your attention to Fossil, Inc (NASDAQ:FOSL) which was down over 40% during yesterday’s bashing. The interesting thing is that JPMorgan Chase & Co. (NYSE:JPM) analysts came out today and downgraded the stock to neutral from overweight. The firm believes that the underlying business is still intact but that the firm is facing a period of transition. JPM downgraded the stock from $138 t0 $88. That would have been helpful earlier this week when the stock was trading at $138, instead of $79 a share at the time of this writing. Also on a peculiar note is the target price is high than what the stock is currently trading at!
Fossil reported earnings yesterday that were not all that good. The company posted profit of 93 cents a share which was barely above analysts’ estimate of 92 cents a share. Revenue wise, the company reported $589.5 million which was higher revenue than last year’s first quarter of $537 million but missed analysts’ estimates of $617.6 million. In addition, weak forecasting shined light onto some possible growth warnings which ultimately was the cause of the drop. Traders were worried about conditions in Europe which made them get out of risky assets to find safer investment alternatives.
However, even as JPMorgan pointed out, the long term story is still there but is currently transitioning. This could be a great opportunity for value oriented investors to snag some Fossil shares on the cheap and ride out the uncertainty.
There has been buzz all over the internet yesterday and today that defends Fossil and explains that this 40% drop was an overreaction that had more to do with European fears than the actual company. Value wise, these type of scenarios are great because the business is solid but overreactions cause the stock to plummet.
However, investors do need to consider the risks involved, particularly this summer where we could see a downturn if conditions deteriorate in Europe. This could not only be a strain on equities but luxury stocks could feel a serious strain in particular.
The bottom line is that Fossil may be something to stay away from in the short term but the underlying story is solid and will return once conditions permit. If you are a value investor that has a long term horizon and not concerned with issues in the short term, Fossil may be a stock to do some research on.