According to Webster’s Dictionary, a “fossil†can be defined as a remnant, impression, or trace of an organism from past geologic ages that has been preserved in the earth’s crust. The main point is that it is dead and gone. This is anything but the truth for Fossil, Inc. (FOSL) which is alive and kicking. It has much further to go before it will be considered any sort of remnant.
The company designs, develops, markets, and distributes fashion accessories worldwide. It offers a line of fashion watches under its proprietary brands, such as FOSSIL, MICHELE, RELIC, and ZODIAC; and through licensed brands, including ADIDAS, BURBERRY, DIESEL, DKNY, EMPORIO ARMANI, MARC BY MARC JACOBS, and MICHAEL KORS.
Great Quarter
Fossil blew the cover off the ball in its first-quarter earnings report and the shares soared over 12%. Earnings surged 55% on 37% sales growth to 86 cents per share, which handily beat estimates of 66 cents. Sales in Asia soared highlighted a quarter in which the company enjoyed broad-based strength across all its product lines.
“Our performance continues to demonstrate the strength of our business model, the success of our core growth strategies and the excitement of our brands around the world. During the quarter, we saw particularly robust growth in Asia where sales rose 57% while North America and Europe sales each grew by 34%,†said CFO Mike Kovar.
Digging deeper on the balance sheet reveals a lot to like with this company. It sports a strong ROE of 26.2%, with very little debt on the books. It is throwing off solid cash flows and its operating margins are excellent. There is no doubt that this company is hitting on all cylinders. Fossil has posted an average positive surprise of 62% over the past four quarters.
Valuations are not dirt cheap after the stock’s strong performance, but it isn’t unreasonable either. Fossil is trading at 20.5x next year’s estimates, which I believe will be raised after the excellent quarter. The market loves organic growth and there is plenty of that at this company. Assuming that management can keep executing, I think the stock can reach $125 in a year’s time.
This Stock Is Not Living Up To Its Name is an article from: 
