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Skullcandy Hears Some Buyout Chatter

The headphone maker is now the subject of takeover talk


Last week, shares of Skullcandy (NASDAQ:SKUL) plunged by 13% on a negative report from Jefferies (NYSE:JEF) analyst Randal Konik. He pointed out that competition in the headphone market was heating up and that revenues could be under pressure.

But today, Skullcandy is getting a nice boost, with the shares up 6% to $7.29 in Wednesday morning trading. The reason? A Bloomberg story suggests the company may be buyout bait. For example, a manager at Royce & Associates, which owns shares in Skullcandy, thinks the suitors could be operators like privately held Bose or Sony (NYSE:SNE).

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A deal would certainly be easy to pull off. After all, Skullcandy’s valuation is dirt cheap, coming to about 8 times earnings.

However, investors need to be cautious. The fact remains that the consumer electronics market is extremely competitive. Consider that Skullcandy must fend off rivals like Adidas (PINK:ADDYY), Beats by Dre, Incase, Urbanears, Soul by Ludacris, SMS Radio, JVC and yes, Sony and Bose. Even Apple (NASDAQ:AAPL) has an offering, called the EarPod for the iPhone 5.

Plus, some signs show that Skullcandy may be losing its “cool” factor. Keep in mind that the company sells its products at places like Target (NYSE:TGT) and Best Buy (NYSE:BBY), which are hardly trendy.

So, if Skullcandy is losing its consumer appeal, it seems unlikely there would be much buyout interest — even if the valuation is attractive. For investors, it’s probably best to tune out the chatter and stay away from the stock.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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