Skullcandy: Zacks’ Bull of the Day Play

Skullcandy, Inc. (SKULSnapshot Report) is cashing in on the fast growing headphone market. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by the double digits in both 2015 and 2016.

Skullcandy makes audio and gaming headphones and other accessories under the Skullcandy, Astro Gaming and 2XL brands.

If you’re seen someone walking down the street with earbuds in their ears, it’s likely that they may be using a Skullcandy product.

The brand is popular with youth culture and it markets Skullcandy as a lifestyle. It sells in about 80 countries worldwide through a variety of channels like Target and specialty retailers.

Another Beat in Q4

On Mar 5, Skullcandy reported fourth quarter and full year results.

Sales jumped 34% to $96.8 million from $72.2 million in the fourth quarter with domestic net sales rising 37% to $70.6 million. International sales were also strong, rising 27% to #26.3 million year over year.

It was another earnings beat for the company which hasn’t missed since its 2011 IPO.

For the full year, sales rose 18% to $247.8 million from $210.1 million in 2013.

Bullish on 2015

Skullcandy is seeing positive trends for 2015.

“2014 marked an important inflection point in the evolution of our company,” said Hoby Darling, President and Chief Executive Officer.

“The business is becoming more diversified, our teams are aligned and hungry for success, and we have a clearly defined roadmap for the future that is working. The foundations have been set for 2015 and we are on full attack,” he added.

The analysts are bullish too.

They expect big earnings growth in 2015 of 47%. They see the strength continuing into 2016 with further earnings growth of 32%.

What’s the Catch?

Shares aren’t exactly cheap. Skullcandy trades with a forward P/E of 28 versus the average of the S&P 500 of 18.

But it has an attractive price-to-book ratio of 2.0 and a price-to-sales ratio of just 1.3 so not all of its valuation fundamentals are outrageous.

For investors looking for a way to play the growing headphone market, Skullcandy should be on the short list.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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