I was looking at skullcandy for the lols, a company whose products i really dislike (ugly logo, mediocre sound quality, not value for money, not fashionable unless you are 13 years old). But the price is crazy straight up interesting.
Current Assets: $152M
Current Assets excl inventories (tech/fashion risk): $109M
Total Liabilities: $32M
Net Net Current Assets (ignoring inventory): 109 - 32 = $77M
Current Mkt Cap: $101M
Adjusted “Net Net” EV: 101 - 77 = $24M
LTM FCFE: $12M
Price Multiple: $24/$12 = 2x FCFE
So you get a shitty product company trading for roughly 2x FCFE, or less than 4x FCFE if you put a conservative discount of 50% to securitize receivables (hypothetical forced EV scenario).
all consumer tech companies trade at similar valuations though and SKUL has by far one of the worst products. i would consider GPRO or FIT far before considering this pile of flaming you know what. i can’t even start to tell you what their competitive advantage is. as a result, i think SKUL will burn through cash and die. nobody will buy this brand except some stupid PE firm whose founders’ kids use these terrible headphones.
They are cheap. Low cost provider, I have a pair that go in ear and wrap around the ear that I bought for like 10/15 bucks that are good enough for gym/running. Certainly dont have an opinion on the company as I havent done research but they obviously have & know their place in the market. If you can move volume a low cost strategy can be lucrative
A good investment is not the same as a good company. However, MLA says (and I have no reason to disbelieve) that the whole sector is trading at roughly that valuation, so given that, you’d presumably want to be investing at the higher quality end of that valuation level.
the only problem with this “low cost strategy potentially being lucrative for SKUL” is that they are a microcap and their brand value is minimal. if they try to survive as a low cost producer, sony or the 40 other recognizable names in portable/home audio, will kill them without lifting a finger. the amount of marketing spend necessary to even remain a relevant competitor is astronomical.
it trades near cash and their burn is minimal so it will take some time for SKUL to die but i’ve seen very few companies manage rapid revenue declines well. their only option for upside is to be bought out. the reason the market is giving their core business next to no value is because they have no competitive advantage. sony headphones at the same price are better and sony’s brand is better and more reliable with a vast majority of the population. also, companies that use skateboarders as brand ambassadors rarely last. punks thrive on anarchy and buying the same crap over and over is anti-punk.
HA!! SKUL. I looked at this in 2014 after ‘Hoby’ had laid out his plan for the turnaround. I didn’t really understand what their edge was, or competitive advantage in their market as BChad says. I liked getting into gaming headsets, but didn’t think that was enough to lift the entire company. Plus I didn’t see that the margins in the high end gaming headsets were any better than their headphones. Didn’t see a path to turn it around and stayed away at $8 or $9.
Now at $3.65, the company has over $1.50 in cash, so you’re really talking about the company being valued at just over $2.00 a share, which is pricing in poor, yet profitable results.
However, 4 straight quarters of margin declines and revenue stagnation lead me to believe this is fundamentally still a falling knife.
So yeah, the bar is low and the stock is certainly cheap, with a good balance sheet. But there are some stocks that you would not buy at any price, because you don’t like the company’s position/strategy in the industry.
i have to say i was close when i said PE firm. incipio is basically a PE firm. buy all crappy companies, mash them together and hope you have a profitable entity at the end of the day.
Interesting how these sort of investments still work for the same reasons, which are exemplified by many of the posts. We typically just hate buying cigar butts. Ben Graham is reading this with a smirk from up above