Why Shares of Fossil Group Inc Tanked Wednesday

By Alex Dumortier, CFAFool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Fossil Group fell by as much as a fifth on Wednesday after the fashion accessories company announced fourth-quarter results and guidance for the current quarter and the full year 2015 -- all of which fell short of Wall Street's expectations. By 2 p.m., shares were down 18% from the previous close.

Continue Reading Below

So what: Fossil Group's fourth quarter is in the bag, so it matters only inasmuch as it is predictive of future results. In any event, as the following table demonstrates, the "miss" on fourth-quarter earnings per share (~5%) is trivial compared to the shortfall between the company's future guidance and Wall Street estimates:

Source: Thomson Financial Network, Fossil Group

Where does this shortfall stem from? The company is blaming the impact of foreign exchange translation and restructuring charges. For the full year 2015, it expects the former to reduce earnings per share by $1.20, on the assumption that "current foreign currency exchange rates that affect the Company's financial results remaining at prevailing levels."

Now what: Jefferies analyst Randal Konik sees an "opportunity to initiate LT [long-term] positions in the stock today." That's very plausible, if the market is mainly reacting to the company's forecast of foreign exchange effects. Currency effects do not determine a company's long-term earnings power or, by extension, its intrinsic value. Instead, in considering whether to buy the shares, patient investors ought to be trying to assess the potential impact of wearables technology on Fossil Group's watch franchise.

The article Why Shares of Fossil Group Inc Tanked Wednesday originally appeared on Fool.com.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Fossil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.