Shivu,
I think sellers are panicking (only my opinion). Here's why:
1. Oakley has no debt, and is now trading at a modest P/E. Competition and price erosion could kill them, but I don't think that's imminent. As the leader in the sports segment of the market, and with Michael Jordan, etc., promoting the brand name, Oakley's future may be more like Nike's (strong customer loyalty) than like Snapple's (weak loyalty). The short sellers are assuming a Snapple scenario. I think they are wrong. I look at the risk of it hitting 8, (Mr. Kass1s target price) vs. the potential that it rebounds to 20. I like this risk/reward ratio.
2. If Sunglass Hut shows a healthy Q2, its P/E, and the P/E's of those companies associated with it, will recover. That is, if Sunglass Hut does well, Oakley shareholders win -- even if Oakley only meets analysts expectations. I speculate that Sunglass Hut is positioning its balance sheet to show a nice Q2.
3. Oakley analysts have switched from Buy to Hold, and lowered earnings expectations. I don1t see how they can damage the stock price much further in the near term. If Oakley performs, the analysts can take a wait and see attitude, or switch back to Buy. If they switch, current Oakley shareholders win.
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With all that said, there are clouds -- Are premium sunglasses of all kinds a "fad?," or will the sports sunglass market grow substantially even as the fashion sunglass market falls apart? Will consumers really pay $250ish for sport sunglasses (X-Metal)? If Sunglass Hut distribution falls apart, will Oakley change its distribution strategy before they get clobbered?
David |
