by Alyssa Oursler | June 24, 2013 10:44 am
Mall-mobbing teens might no longer be thought of as recession-proof, but they’re still a popular target for companies.
Of course, that doesn’t mean they are an easy one. While consumers in general are often described as fickle, no group seems to roll with the trends as much as the coming-of-age.
With that in mind, one might think that — out of the countless companies seeking a younger crowd — the newer kids on the block might have a leg up on the competition. They don’t have the baggage of an Abercrombie & Fitch (ANF), haven’t yet peaked like Deckers Outdoor’s (DECK) Ugg boots and can position themselves as hip or cool from the get-go.
In reality, that’s far from the case. A quick review of “young-gun” stocks — companies that are relatively new to the scene and target a younger crowd — shows polarized results, suggesting that countless once-cool companies seem to hit the market after they’ve peaked.
Just look at these four stocks, three of which have plunged big-time since their offerings:
Total Return: -74%
The first wannabe-cool company that comes to mind: Skullcandy (SKUL). The headphone-maker that calls itself a unique collision of music, fashion and action sports hit the market in the summer of 2011.
It has been in a race to the bottom ever since.
Skullcandy has been suffering from slipping sales, and its earnings are expected to decline 87% this fiscal year. In the most recent quarter, it took a brutal loss of 27 cents per share vs. a profit in the year-ago period … and all that woe has translated to a 32% slide for SKUL year-to-date.
One big issue for the brand: a huge pile of competitors. Apple (AAPL) makes earbuds, as does Dr. Dre, Bose, Sony (SNE) and more. Plus, the company just seems to be trying a little too hard between its skull-shaped logo, celebrity “brand ambassadors,” bright colors, eye-catching patterns and custom designs.
It seems like there’s cool, and then there’s … well, too cool. The latter is a recipe for a fad, not a successful company.
Total Return: -73%
If you’re a parent, you’ve likely had to tell your teen to stop playing on his or her smartphone … and Zynga (ZNGA) has more than likely been to blame behind the scenes.
See, the social gaming company is the name behind popular pastimes like Scramble With Friends and Draw Something, as well as the ubiquitous FarmVille fad.
Unfortunately, such popularity hasn’t provided much promise from an investor’s point of view. Znyga has lost nearly three-quarters of its value since the first day of trading … despite a decent 16% year-to-date improvement.
For a quick glimpse into the company’s struggles, just remember back to the start of the month: The gaming company slashed its work force by a whopping 18% thanks to slowing growth. Zynga also has had a rough go of replenishing its aging hits with new ones.
Seems like Zynga enjoyed its glory days long before it ever became publicly traded.
Total Return: -38%
Of course, how could we forget Facebook (FB)?
Mark Zuckerberg’s giant social media network botched its highly anticipated IPO, then proceeded to shed more than half its value during its first three months of trading.
And it’s certainly lost quite a bit of its cool factor.
The site started as a college-kids-only destination, but once that restriction was lifted, it became a near-necessity for any and all teenagers. Now, however, it’s starting to reach capacity, as everyone from Dad to Grandma has a profile. Meanwhile, options like Twitter and SnapChat are gaining in popularity, and even users who have stuck with the site almost seem to do so begrudgingly.
Sure, Facebook has been trying to stay relevant by debuting new feature after new feature — Instagram videos, Graph Search, hashtags, Facebook Home — but none have really caught on, helping keep FB shares well in the red so far in 2013.
Total Return: +41%
Last but not least, we have the outlier in this young-gun category: one that’s both publicly traded and still popular.
Discount retailer Five Below (FIVE) has been on the public markets for just more than a year, and so far, its “hot stuff, cool prices” motto seems to be pretty accurate. The company offers everything from T-shirts to nail polish to movies to bedazzled iPhone cases, divided into “worlds” and all priced within a range of $1 to $5.
And teens are loving it. As InvestorPlace IPO expert Tom Taulli noted late last year, a new store location has a payback period of less than a year, and sales have been soaring. The company improved sales every quarter since its offering, with eye-popping average growth of more than 50% from fiscal 2009 to 2011.
That has meant success on the bottom line, too. The company’s first two quarterly reports following its IPO saw earnings per share come in four times and three times analyst expectations. And during the next five years, earnings are expected to grow at an annual rate of 31%.
Of course, while Five Below is “in” right now, the key is staying there. And as the previous three examples have shown, that won’t be easy.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
Source URL: http://investorplace.com/2013/06/4-young-gun-stocks-trying-to-stay-cool/
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