Fossil Group Inc Stock Valuation – February 2016 $FOSL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Fossil Group Inc (FOSL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Fossil Group, Inc. is a global designer, marketer and distributor company that specializes in consumer fashion accessories. The Company’s offerings include a line of men’s and women’s fashion watches and jewelry, handbags, small leather goods, belts, sunglasses, soft accessories, and select apparel. The Company operates in four different segments: the North America Wholesale segment, the Europe Wholesale segment, Asia Pacific Wholesale segment and the Direct to Consumer segment. Its products are distributed globally through various distribution channels, including wholesale, retail stores and commercial Websites. The Company sells its products through a diversified distribution network that includes department stores, specialty retail locations, specialty watch and jewelry stores, Company-owned retail and factory outlet stores, mass market stores, and through its FOSSIL Website.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of FOSL

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,698,941,499 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.61 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 264.69% Pass
6. Moderate PEmg Ratio PEmg < 20 6.09 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.91 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.61 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.69 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

FOSL value chart February 2016

EPSmg $5.66
MG Growth Estimate 10.41%
MG Value $165.99
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $82.09
MG Value based on 0% Growth $48.12
Market Implied Growth Rate -1.21%
Current Price $34.46
% of Intrinsic Value 20.76%

Fossil Group Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, and the poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.34 in 2011 to an estimated $5.66 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.21% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price. Fossil Group Inc performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

FOSL charts February 2016

Net Current Asset Value (NCAV) $3.73
Graham Number $41.36
PEmg 6.09
Current Ratio 3.61
PB Ratio 1.91
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $1,565,034,000
Total Current Liabilities $433,532,000
Long-Term Debt $785,706,000
Total Assets $2,254,877,000
Intangible Assets $359,423,000
Total Liabilities $1,385,085,000
Shares Outstanding (Diluted Average) 48,242,000

Earnings Per Share History

Next Fiscal Year Estimate $4.21
Dec2014 $7.10
Dec2013 $6.56
Dec2012 $5.59
Dec2011 $4.61
Dec2010 $3.77
Dec2009 $2.07
Dec2008 $2.02
Dec2007 $1.75
Dec2006 $1.13
Dec2005 $1.04
Dec2004 $1.23
Dec2003 $0.92
Dec2002 $0.81
Dec2001 $0.62
Dec2000 $0.76
Dec1999 $0.69
Dec1998 $0.44
Dec1997 $0.18
Dec1996 $0.20

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.66
Dec2014 $6.10
Dec2013 $5.24
Dec2012 $4.26
Dec2011 $3.34
Dec2010 $2.52
Dec2009 $1.80
Dec2008 $1.59
Dec2007 $1.32
Dec2006 $1.08
Dec2005 $1.01
Dec2004 $0.95
Dec2003 $0.79
Dec2002 $0.71
Dec2001 $0.62
Dec2000 $0.56
Dec1999 $0.41

Recommended Reading:

Other ModernGraham posts about the company

10 Most Undervalued Companies for the Defensive Investor – February 2016
10 Most Undervalued Companies for the Defensive Investor – September 2015
10 Low PE Stocks for the Defensive Investor – August 2015
The Best Companies of the Retail Industry – August 2015
10 Most Undervalued Companies for the Defensive Investor – August 2015

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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