While cautioning that the company's "road to recovery" will be long, the firm also notes that the headphone maker has demonstrated sustained improvement.
"We are upgrading SKUL to hold from underperform as we see signs of sustained fundamental improvement and a cleaner foundation from an inventory, distribution and product perspective," said analysts.
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Separately, TheStreet Ratings team rates SKULLCANDY INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate SKULLCANDY INC (SKUL) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Household Durables industry. The net income increased by 347.6% when compared to the same quarter one year prior, rising from -$0.64 million to $1.57 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.4%. Since the same quarter one year prior, revenues slightly increased by 6.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has slightly increased to -$2.47 million or 9.76% when compared to the same quarter last year. Despite an increase in cash flow, SKULLCANDY INC's cash flow growth rate is still lower than the industry average growth rate of 23.92%.
- Powered by its strong earnings growth of 400.00% and other important driving factors, this stock has surged by 40.27% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Household Durables industry and the overall market, SKULLCANDY INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: SKUL Ratings Report