Should You Look At Skullcandy This replica Hermes Birkin

Situation: Skullcandy has had its share of trouble, following an IPO at $20 per share in 2011, the company's stock price fell dramatically going as low as $5 per share. The company has recently undergone a management shift, built its international focus, replica Hermes Birkin and turned its focus to sub $100 price point products. As the company focuses on demand creation, innovation, and in store presentation operating leverage will likely be limited but top line growth could be robust.

Brief Business Description: Company is lifestyle and performance audio brand inspired by the youth culture. They design and distribute audio and gaming headphones, earbuds, speakers, and other accessories. and internationally. Skullcandy pioneered the distribution of headphones through specialty retailers, such as Zumiez and Tillys. The company also produces gaming headphones, following their acquisition of Astro Gaming.

Gross margin improvement from improved product mix

Company is acquired because of strong balance sheet and relatively small market capitalizationStrong adoption of new product production and packaging

Growing adoption of female headphones

Beating street consensus on either revenue or earnings per share

Takeout Value Provides Long Investors Additional Upside: Technology focused acquisitions can offer large returns for target shareholders. Apple's recent $3 billion dollar acquisition of Beats is a recent example of a large headphone acquisition. Apple, Sony, and Bose all with billions on their balance sheets may acquire Skullcandy if it completes a successful turnaround. Additionally, Google's acquisition of Nest is another example of a frothy device acquisition. Another acquisition of a device company is Sony acquiring full control of handset maker Sony Ericsson for $1.46 billion. Ultimately an acquisition of Skullcandy could value the business at 3 times revenue, if an acquisition similar to beats occurs(Beats reportedly has approximately a billion in revenue at acquisition time). Assuming a lower acquisition at two times revenue, given Skullcandy's smaller growth rate, this would value Skullcandy at 19$ per share, back to near its initial public offering price of $20.

Insider Buying Is Positive: Jason Hodell the CFO recently acquired shares prior to earnings. Insider buying is a strong sign that the company is undervalued, as management already holds large positions in the company as a result of their vested options and restricted stock units.

Gaming Headphone Market Is Large Opportunity: Skullcandy acquired Astro Gaming in 2011 to position themselves in the premium gaming headset category. Astro Gaming dominates the premium segment with over 70% market share. The product is an Xbox 1 licensed partner and is PS4 compatible. The gaming headset market is a $342 million market, and Skullcandy is well positioned within the segment with their acquisition.

Women's Line Is Big Opportunity: Headphones have traditionally been unisex in both acoustics and design. Skullcandy however recently launched their Women's line series, which feature patterned and designed headphones specifically designed for women. The company has explained that they headphones were designed to better match the anatomical and acoustic differences between men and women. There are studies that explain women are better at hearing acuity above 1 or 2 kHZ. The company has also focused on female form fitting ear gels and unique adjustments in clamping pressure. Stylish headphones for women are an opportunity that can make headphones a stylish accessory like handbags. Frends is a start up which is entirely focused on this luxury women's market and has already secured millions in financing. Although some of these apply for Skullcandy with its clean balance sheet and limited working capital requirements, its current valuation is expensive, its cash flows have been volatile following its turnaround, and the business requires substantial working capital. Thus we see the likelihood of a sponsor initiated LBO as minimal.

Valuation: Comparable companies in the audio space were utilized to obtain a valuation for Skullcandy. Companies within the headphone and handheld electronics market were utilized. A median enterprise value to revenue multiple of 1.2 was obtained, a discounted multiple of 1 was used on Skullcandy's projected revenue given Skullcandy's lower revenue growth versus its peers.

Conclusion: Skullcandy looks like a nice long position over the next 12 18 months. We view the downside risk as book value of $6 per share(excluding goodwill). We view the downside risk as book value of $6 per share(excluding goodwill). We feel the intrinsic value of the stock is approximately $10 per share. The street has a mean price target of $9, so we are on the upper end of sell side analysts. We like the acquisition optionality we are not paying for and the recent expansion into the women's retail sector coupled with the continued growth of the gaming headphone offerings.