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The luxury watch business, which constitutes the core business of Fossil Group, Inc., is currently experiencing a major disruption that is caused by two factors. In fact, the rapid sales growth of these high-margin products was a major factor for the stock skyrocketing after the latest earnings announcement. In 2017, the number of wearables exceeded 300. actively develops wearables like smartwatches, hybrid watches, and activity trackers.
#FOSSIL WATCH S AND P 500 FREE#
Despite declining sales and losses due to impairment charges, the free cash flow has consistently remained positive. is highly visible and possesses a unique branding advantage. Add to this the who-is-who of licensed brands (Michael Kors, Adidas, Armani, etc.) through which it sells its wares, and it becomes clear, that Fossil Group, Inc.
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Fossil and its fellow owned brands are well-known and stand for luxury and quality. possesses (or at least possessed) several unique advantages, which should enable it to thrive in the future. This is an indication that Fossil Group, Inc. THE COMPETITIVE ADVANTAGE OF FOSSIL GROUP, INC.īefore running into problems during the last years, the net profit margins were consistently above 10% until 2014. Now, let’s discuss how and why those free cash flows could be achieved. can be expected to yield a potential 10.2% annual return at the current price of $15. We assume a 5% chance for the upper growth rate of 0% per year, a 50% chance for a decline of 7% per year and a 45% chance for the worst-case scenario of -15% annual growth.Īssuming these conservative growth rates, Fossil Group, Inc. To build this estimate, we make use of an array of potential outcomes for future cash flows.Įach line in the above graph represents a certain probability for occurring. Although results have improved lately (not shown in the chart), we will use a very conservative estimate of the future free cash flow. Below is a chart of Fossil Group, Inc.’s free cash flow over the past ten years.Īs one can see, the free cash flow is both volatile and has, in the last years, declined. Most importantly, it demonstrates a return on the principal that might be invested into the ownership of equity of the business. The free cash flow is important because it represents the company’s ability to retain earnings and grow the business. To determine the value of Fossil Group, Inc., let’s start by looking at the company’s history of free cash flow. THE INTRINSIC VALUE OF FOSSIL GROUP, INC.