Fossil: Short FOSL Stock Into the Dirt

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Fossil Group Inc (NASDAQ:FOSL) isn’t having the best start to 2015. After an already weak performance so far this year, shares of the consumer fashion accessories maker have continued to struggle since its first-quarter earnings report.

beat the bell stock investing adviceThis once trend-follower favorite has seen a great deal of turbulence since the summer of 2012, and it increasingly looks like FOSL stock will be dogged by lower prices. Still, courtesy of a nice multiweek trading range, active investors and traders alike have some well-defined risk and reward to focus around.

When Fossil Group announced Q1 earnings last week, it reported earnings of 75 cents per share to beat analyst estimates for 63 cents, but revenues of $725 million fell short of expectations for $732 million. All told, FOSL’s top line was down 7% year-over-year, though the year-ago period did have an additional week to record sales.

Backing out currency impact and restructuring charges, Fossil expects Q2 earnings to come in between $1.18 and $1.29 per share, which is well above the Zacks analyst consensus of 66 cents per share. Still, those concerns about a strong dollar impacting international sales have analysts cautions on FOSL stock.

FOSL Stock Charts

Looking at FOSL stock through a multiyear lens, we see that the steep 2010-11 rally finally came to an abrupt end in July 2011, as shares cratered nearly 50% across three weeks. While Fossil ultimately recovered and managed to eke out a new all-time high in spring 2012, in the bigger picture, the stock’s trending days were over.

Since the 2012 all-time highs. FOSL stock has formed a series of lower highs that are visibly weighing on shares. This multiyear choppiness combined with the lower highs looks likely to push Fossil stock to a lower low, which would send FOSL slipping into the low $60s — roughly 20% lower from here.

fosl stock charts weekly
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On the daily chart, we see that FOSL stock gapped lower on big volume in February, after which shares settled into a well-defined consolidation phase. Then last week on May 6, FOSL gapped lower and sold off as traders reacted to earnings. On an intraday basis, this also pushed FOSL below the consolidation phase marked by the two black parallels.

However, Fossil did fail to close below this zone, giving the initial impression that sellers exhausted themselves. But since then, FOSL hasn’t seen any follow-through buying, and now with Wednesday’s 2% slide in the pocket, shares are increasingly at risk of breaking below last week’s post-earnings lows and begin filling an up-gap from August 2012, which could get the stock down toward the $70 area.

fosl stock charts daily
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Active investors and traders could look to short the stock or buy puts on a break below $76.40 for a move into the $70 area. Any strong bullish reversal would quickly call off the trade.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/05/fossil-group-fosl-stock-short/.

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