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Investors Play Ping-Pong with Shares of Fossil (FOSL)

September 14, 2012 2:57 PM EDT Send to a Friend
Shares of Fossil (NASDAQ: FOSL) are ripping higher Friday, rising 11 percent, but it has been anything but a easy road as of late for the designer of fashion watches. The company had a troubling first quarter that exposed potential troubles in the company's plans for global growth. Top line trends decelerated meaningfully, in part due to difficulties in Europe and other growth markets, and as a result the stock hit the skids in the second quarter, declining to a low below $65 per share.

Fossil reported Q2 earnings in early August, and the results were an improvement, especially on the earnings front, and though revenue was light the stock advanced. Since then the stock has experience choppy trading action, roaming between $90 and $83, before breaking out of its range today and climbing 10 percent to $92.90. The move appears to be related to improvements in FX, which have been a headwind for Fossil.

The company clearly has huge growth opportunities for its high margin watch and accessories business in Asia, and Equity analyst Ike Boruchow at JPMorgan thinks China will start to ramp up now that it has increased manpower and infrastructure overseas. However, while improvements in FX may provide continued upside momentum, investors should brace for volatility.

"With Q1's slowdown across Europe and some Asian regions, followed by Q2's inexplicable improvement in those same regions, visibility into the future has become incrementally tougher as the stock revalues to capture the risks associated with the company’s expansion plans," said analyst Ike Boruchow, Jr. of JP Morgan Equity Research in a recent report.

In his most recent note from August, Boruchow said he would remain sidelined awaiting further clarity into the business over the coming quarters. Since then there has been noticeable improvements in FX, which should improve top line results. However, the volatility, which appears to be a function of fits and starts in the growth story, is likely to continue.




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