Schaeffer's Trading Floor Blog

Weekly Contrarian: Is Fossil Ready to Prove Skeptics Wrong?

Analysts begin to reevaluate their bearish stance toward FOSL

by 10/17/2012 3:08 PM
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A recent article in Barron's entitled Why Fossil Can Rock (available only to subscribers), has the author waxing optimistic about accessory designer Fossil, Inc. (NASDAQ:FOSL). In fact, the optimistic writer begins the story with a simple statement: "The timing seems excellent for Fossil stock."

The writer contends FOSL offers an appealing value to consumers, considering the stock is trading at just 16 times earnings. Additionally, a portion of FOSL products are branded under the Michael Kors Holdings Ltd. (NYSE:KORS) name, a luxury retailer projected to earn "$4.4 billion in yearly sales by its fiscal year ending March 2017, according to FactSet data." Summing it up, the author concludes, "With Fossil shares, investors have an opportunity to ride the Michael Kors momentum in coming quarters while reducing potential losses if the brand falls out of favor."


Although FOSL gapped significantly lower in early May following its poorly received first-quarter earnings report, the stock has been fighting back in the months since. In addition to outperforming the broader S&P 500 Index (SPX) by more than 25 percentage points over the past 60 sessions, FOSL is currently sporting a respectable 13.5% year-to-date gain.

Although FOSL has shown its ability to muscle higher in the face of fundamental struggles, option players have displayed a growing interest in bearish bets in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio arrives at 0.92, a marked rise over its 20-day put/call volume ratio of 0.43. In other words, puts have grown increasingly popular on FOSL over the past two weeks.

Elsewhere, short interest accounts for a healthy 5.8% of the stock's available float. Plus, no fewer than seven out of 12 analysts still maintain a tepid "hold" rating on FOSL, and the consensus 12-month price target of $101.73 represents a middling 11% premium to the equity's closing price of $91.31 on Tuesday, Oct. 16.

From a contrarian perspective, FOSL could be poised to encounter some tailwinds in the near term. With ample sideline cash available, a capitulation by the skeptical brokerage bunch -- such as Citigroup's recent reevaluation -- could provide the equity with a fresh wave of buying power.

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