Valuation, Market Presence Make Skullcandy (SKUL) Potential Takeover Target

January 9, 2013 7:23 AM EST
Listen up! After falling more than almost any other IPO over the last 18 months, headphone maker Skullcandy (Nasdaq: SKUL) may be finally ripe for a takeover.

Shares of Skullcandy are down about 66 percent since its July 20111 IPO. Bloomberg-compiled data has the stock performing worse than all but seven of 185 U.S. IPOs over the period.

Currently valued at 3.9 times EBITDA, Skullcandy is cheaper than about 96 percent of all stocks in the Russell 2000 Index. Revenue growth expectations have ebbed as well: growth of 36 percent to 47 percent from 2009 through 2011 has now been whittled down to expectations of 15 percent in 2013 and just 3.5 percent in 2014.

Some of the recent pressure could be attributed to Apple (Nasdaq: AAPL), which announced new earphones last August and began packaging "Beats by Dr. Dre" headphones with the iPhone. Skullcandy's move into lower-margin offerings didn't boost investor sentiment either.

Noted headphone maker Bose might see Skullcandy's low cost and brand recognition as attractive investment options. Sony (NYSE: SNE) might also take a look given its recent push to sell X Headphones. Action sports clothing makers might also be interested given Skullcandy's closer ties to the segment.

With Skullcandy having a key market in the early-teens to 20-something demographic -- a segment that largely spends more time on mobile devices and consumes more content than other demographics -- low valuation and market presence could deliver investors with a takeover premium that can't be "beat."

Shares are indicated for a higher open Wednesday.

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