(This is an excerpt from an article I originally published on Seeking Alpha on December 24, 2012. Click here to read the entire piece.)
In early October, I ended the trade in Skullcandy (SKULL) playing a bounceback from Morgan Stanley’s devastating downgrade, but noted I would remain a buyer on dips (see “Skullcandy Recovers Losses From Downgrade – Now Comes The Tougher Part“). {snip}
Source: FreeStockCharts.com
{snip} There are two main reasons I remain optimistic for an eventual recovery in SKUL’s shares: a rapid reduction in shares short and the potential referenced in the earnings conference call despite acknowledgement of the challenging retail environment. The potential is expressed in management’s strategic focus: raising average selling price, expanding the gaming business, growing international sales, and developing other brands and business categories.
Short interest in SKUL peaked over the summer, ahead of the Morgan Stanley downgrade and well-ahead of November’s disappointing earnings performance. {snip}
Source: NASDAQ.com short interest
Supporting a positive interpretation of the change in short interest is the parallel drop in the open interest put/call ratio. {snip}
SKUL’s earnings conference call did not go well…{snip}
Make no mistake – the road to recovery for SKUL will not be easy and is not guaranteed. It will have to start with holiday sales that at least meet expectations. {snip}
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on December 24, 2012. Click here to read the entire piece.)
Full disclosure: long SKUL