Skullcandy is a designer, marketer and distributor of performance audio and gaming headphones, ear buds, speakers and other accessories under the Skullcandy, Astro Gaming and 2XL brands.
"We continue to view this as the best small cap idea in consumer discretionary today based on better management, enhanced product and improving fundamentals," analysts said.
Strong sales results and favorable market data trends reinforce Jefferies' view that product enhancement being made to Skullcandy product look and technical specs are resonating strongly with consumers, the firm noted.
"We like that management remains committed to offering innovative productive at disruptive price points and are optimistic for what is in store for 2015, particularly in new product categories, such as wireless and gaming," Jefferies said.
Analysts said they like that Skullcandy has adopted a more focused product strategy with product for the most part $100 and under as it better positions the company from a competitive standpoint, especially as Beats moves more upmarket.
Risks to the stock include a loss of share in a competitive market, higher sourcing costs and loss of authentic brand image, Jefferies noted.
Separately, TheStreet Ratings team rates SKULLCANDY INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate SKULLCANDY INC (SKUL) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and solid stock price performance. We feel these strengths outweigh the fact that the company shows weak operating cash flow.
You can view the full analysis from the report here: SKUL Ratings Report