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Skullcandy Surges on Earnings Beat, Guidance Boost

Shorts are rushing to cover as SKUL revisits the significant $18 level

by 11/4/2011 12:15:31 PM
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After Thursday's closing bell, Wall Street newcomer Skullcandy Inc. (SKUL - 16.72) stepped into the earnings spotlight. The company banked a third-quarter profit of $1 million, or 4 cents per share, much improved from its year-ago loss of $1.2 million, or 9 cents per share. On an adjusted basis, SKUL earned 17 cents per share. Meanwhile, net sales ramped up 57.5% to $60.6 million. Both figures bested Wall Street's expectations, which were calling for a profit of 14 cents per share on $50.6 million in revenue.

Looking ahead, SKUL predicted a full-year adjusted profit of 93 cents per share on $231 million in revenue, representing a significant increase over its previous guidance for earnings of 87 to 92 cents per share on $208 million to $218 million in revenue. Analysts, on average, were calling for a fiscal 2011 profit of 90 cents per share on $217.3 million in revenue.

As a result of this upside surprise, SKUL has surged higher today. At last check, the stock is up about 9% -- but the intraday peak of $17.90 is worth noting. The $18 level served as support for SKUL during the first few weeks after its public trading debut earlier this year, but this region now seems to have switched roles to act as resistance.

 Daily Chart of SKUL since July 2011

Checking out the stock's sentiment backdrop, it's not quite clear whether SKUL can muster enough buying pressure to surmount this looming technical hurdle. With 31.3% of the equity's float sold short, SKUL seems like a solid candidate for a short-squeeze rally. In fact, at the stock's average daily trading volume, it would take nearly three weeks for all of these shorted shares to be covered.

However, with today's post-earnings advance fizzling near the $18 area, it would seem that some of these bearish players remain firmly entrenched.

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