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This is an example of how a buy-side analyst would start coverage on a new name and what an initiating memo might look like. I chose Fossil as part of an investment group with some help from BlackHat and this is the final product. Keep in mind this is not a stock pitch, this is an initiation, so you'll notice it's pretty long, somewhat broad in some areas, and aims to lay out the story behind what's going on with FOSL and what an analyst might want to find out before putting a recommendation on it. And lots of firms may do this much differently.

It's from August so not completely recent, but should give you guys a good idea of what one of these reports looks like and what's important to the PM in a first look at a company. Due to length I've also included it as an attachment for you to download if you like.

Little do you know, these guys make your trendy Michael Kors watches...

Though Wall Street may always prefer to rock the Rolex or the Breitling, nobody can deny Fossil's dominance on Main Street in what I like to call the "feel good" price range of fashion watches and accessories. Offering watches in the range of $55-$2,395 through its four proprietary brands, consumers can always find a piece that makes them "feel good" about both their stylish purchase and their savings. The Fossil brand and others like it are even stronger when economic conditions prompt people to trade down on discretionary items like watches.

Thanks to their brand strength and widespread distribution, the company has enjoyed a near monopoly in the moderately-priced fashion watch segment, evidenced by high double-digit annual sales growth since 2009. [Fun fact: At one point, over 33% of all watch sales in the US were Fossil watches.] Fossil has had a roller coaster share price recently, featuring two long run-ups followed by steep 40-50% drops over the past few years, but has shown a few flashes of brilliance along the way that make it worth HCM's time to investigate.

The explosive growth story has been around for a while now, with sales growth of 24% and 32% in 2010 and 2009 respectively. The highest growth has come from watches, Fossil's primary sales item at 72% of net sales in 2011. The market seems to follow management's growth forecasts more than anything else, evidenced by a 40% collapse in the share price from a high of $140 after a revenue miss and full-year guidance cut. Regardless of these setbacks, Fossil's growth story is real: 5-year CAGRs for net sales, net income, and diluted EPS are 12.4%, 19.1%, and 21.4% respectively. But finding out just how long Fossil's runway is (and what could potentially shorten it) will probably be what makes this a compelling investment or not, and given the potential for fashion risk and an eventual slowdown in this impressive growth, there's plenty of things that could go wrong for Fossil in the future. So the question is: in 5-10 years, could it be a top performer... or will Fossil have hit its peak and end up a dinosaur?

Introduction

Fossil is a global design, marketing, and distribution company that specializes in consumer fashion accessories. Their main offerings are men's and women's fashion watches and jewelry, handbags, leather goods, belts, sunglasses, shoes, and clothing. It uses a variety of proprietary and licensed brands to market these goods, and distributes them through their own network to both wholesale customers and company-owned retail locations. Management divides the business into four segments: North America wholesale, Europe wholesale, Asia Pacific wholesale, and Direct to Consumer. The wholesale divisions sell and distribute Fossil products to department stores, specialty retail locations, watch and jewelry stores, and company-owned retail and outlet locations in their respective regions. Direct to Consumer, like the name suggests, is Fossil's own sales operation which includes fully-priced retail and outlet stores, as well as an internet/e-commerce business. As of year-end 2011, Fossil had 123 retail and 74 outlet stores in the United States, with international locations broken down into 156 retail, 11 "multi-brand," 4 clothing, and 30 outlet stores.

Before I get ahead of myself I'll provide a short history. Fossil was founded in 1984 as "Overseas Products International" by Tom Kartsotis after his brother Kosta, a merchandising executive at a large department store, told him about the benefits of selling imported retail goods from China and other Far East countries. At Kosta's suggestion, the company focused initially on fashion watches with a retro look, before introducing leather goods in 1990 under the Fossil brand and Relic line of watches. The company IPO'd in 1993 as Fossil, and began purchasing higher-end Swiss brands to establish a presence in Switzerland. They purchased the Zodiac brand in 2001 and Michele Watch in 2004. They also expanded into jewelry, clothing, wallets, and eyewear during the same period. As of 2000, the company is run by Kosta Kartsotis as CEO, with his brother Tom retaining the position of Chairman up until May of 2010, when he left the board and gave his brother the Chairman title as well.

Anyway, back to the business. Within the watch category where the majority of sales are derived, Fossil has several proprietary and licensed brands which it uses to market its products. Its in-house brands are the aforementioned Fossil, Michele, Relic, and Zodiac; the brands it has exclusive licensing agreements to market under are Adidas, Armani Exchange, Burberry, Diesel, DKNY, Emporio Armani, Marc by Marc Jacobs, and Michael Kors.

Not only is the watch business Fossil's largest, it has a historic pattern of growth, with watch sales contributing 66%, 70%, and 72% of consolidated sales in 2009, 2010, and 2011 respectively. [Leather, Jewelry and Other Goods currently make up 16.4%, 6.3%, and 4.3% of sales, respectively] Further, their licensed brands in particular seem to be where most of the growth is coming from: in 2010 and 2011 licensed brands saw 53% and 43.4% sales growth (respectively) while proprietary saw only 22% and 17%. This brings up my first concern - that sustaining overall sales growth is going to be heavily dependent on the continued popularity of these licensed brands, and Fossil's ability to renew these licenses exclusively, as I'd imagine plenty of other manufacturers will be offering hefty sums to get a piece of the action once these agreements expire over the years 2014 to 2018. A brand-by-brand breakdown of Fossil's watch offering: [chart unavailable]

Though watches are probably the most important driver of revenue growth, we can't forget about the other quarter of the pie that comes from the various fashion accessories Fossil sells. Under the Fossil brand, they sell hats, gloves, and scarves, all of which they refer to as "soft accessories." Their leather goods consist mainly of mini-bags, coin purses, and wallets. Utilizing many of their licensed brands, Fossil also offers jewelry such as earrings, necklaces, and bracelets under the Emporio Armani, Diesel, DKNY, Fossil, and Michael Kors brands. It's important to note that their jewelry is typically made from base metals, stainless steel, semi-precious stones, 18K gold, or sterling silver - no diamonds. Fossil believes that by selling these in locations adjacent to watch departments, it will lead to purchases by customers familiar with the company's line of watches. In aggregate, the fashion accessory lines have accounted for 31.1%, 27.4%, and 26.0% of sales in 2009, 2010, and 2011 respectively. This suggests the growth in watch sales outpaces accessory sales, as many analysts argue we are in a favorably "watch cycle," something I can't yet figure out the actual reasoning behind. Lastly, smaller miscellaneous items such as clothing, shoes, and eyewear have made up the final 1-2% of sales still unaccounted for, but are not significant businesses at this point. The chart below gives a full breakdown of Fossil's fashion accessory brands and their primary markets (distribution channels listed here are more or less the same as what they would be for watches): [chart unavailable]

Fossil also has a new addition to the family with its January 2012 acquisition of Nevada/Denmark-based Skagen Designs, primarily a manufacturer of watches, jewelry, and sunglasses. Skagen follows a European/Danish style (whatever that means) and has shown global popularity through successful moves into Asian and Middle Eastern markets in recent years. The acquisition was completed in April, with Fossil paying out about $232M in cash and 150,000 shares of FOSL, with an earn-out that could deliver an additional 100,000 shares to the former owners if sales of Skagen-branded products exceed certain thresholds. Including the shares and quoted at today's market price, that means the acquisition cost about Fossil about $245M, or $254M with the earn-out included. We won't know if this was a smart acquisition or not until Skagen is fully integrated into Fossil's distribution networks, but for what it's worth, the brand contributed about $25M in overall sales to Fossil during Q2. Further, in accounting for the transaction in the second quarter's 10-Q, Fossil booked $137M in goodwill related to the deal, on total net assets acquired of about $260M, meaning they paid about 2x book value. However, management believes they can take advantage of several synergies by acquiring Skagen, claiming that their superior distribution and global presence can make the Skagen brand more profitable than it ever was as a standalone business.

Logistically, Fossil claims to have an advantage through the utilization of captive suppliers and wholly-owned, centralized points of distribution in its key markets. Its main centers are located in Texas, Germany, and Hong Kong. The two entities that source the majority of Fossil's watch production volume in Asia (about 60% of all watches Fossil sells in the Far East) are majority-owned by the company, and unrelated accessory manufacturers elsewhere are more or less reliant on Fossil's business to stay operational. Long-term relationships with these unrelated suppliers have allowed management to exert a lot of influence upon them, giving Fossil priority within their production schedules if/when they need it.

One last important observation worth mentioning is the seasonality of the business. Like most discretionary retail (particularly consumer fashion), Fossil generates the bulk of its sales and operating income during the third and fourth quarters thanks to the back-to-school and Christmas seasons. The company also believes that as they build out their Direct to Consumer business, their fourth quarter will continue to see bigger jumps in profitability, but at the expense of the first and second quarters when they will see operational deleveraging as a hangover from Q4. Further, perceived demand leading up to the holiday season is very important to Fossil sales, as wholesale customers will build up inventories if they see a busy Christmas. This also has a hangover effect for Q1 and Q2, since if actual Q4 sales underwhelm perceived sales, vendors will be left with large inventories and will destock those rather than purchase more from Fossil in Q1/Q2. Conversely, an unexpectedly busy holiday season will lead to much higher Q1 sales as vendors restock.

As of this writing, Fossil had a closing price of $84.56, giving it about a $5.25B market cap and 16x 2012E earnings of $5.30, or 17.5x trailing twelve months earnings of $4.83. Average 3-month volume is right around 1.4M shares, or just shy of $120M worth of stock using the closing price. At 25-33% of daily volume this means it would take about 3.75 to 5 trading days to accumulate a $150M position, making it a fairly liquid stock especially given renewed interest in the equity after the announcement of Q2 earnings last week, which I will elaborate on later.

Competitive Position

Competitively speaking, Fossil has a strong branded presence in just about every area of the price spectrum for fashion watches and accessories. Because of this, it would be inaccurate to say that Guess, LVMH, or other similar fashion brands that have watch offerings are direct competitors of Fossil on the whole. While Fossil competes in certain segments with these companies, its watches and other accessories do battle at a wide variety of price points, something that can't be said for Louis Vuitton, so they aren't exactly the same. Perhaps the best comparable from a purely watch standpoint is The Swatch Group, which has brands marketing to the same consumer segments as Fossil, though Swatch stretches higher into the luxury range with brands like Omega and Glashutte. And while a portion of Fossil's Michele brand aims to reach high-end customers at price points near $2500, the main focus for Fossil is on the 99%, not the 1%. [Though it's hard to believe, there are more people in the 99% than the 1%, so this could be a good thing if you can convince them your watches are fashionable]

Fossil likes to break down the competitive landscape in watches into four segments which include high-end luxury, premium designer, mass market, and contemporary fashion watch segments. A portion of the Michele brand competes with Rolex, Cartier, and others in the high-end luxury segment at prices of $4000 and above. The Burberry, Emporio Armani, Michele, and Zodiac lines compete with the likes of Seiko and Tag Heuer in the $495-$4000 premium designer arena. Within mass market, which includes watches ranging from $7-$60, Fossil has no particular brands, but is exposed to the segment through the design and production of private label watches for Wal-Mart and Target.

The fourth and most important segment for Fossil is contemporary fashion, with retail prices ranging from about $65-$595, where they compete with brands like Swatch and Kenneth Cole through the Fossil, Relic, Armani Exchange, DKNY, Diesel, Marc Jacobs, and Michael Kors brands. Fossil also competes elsewhere through their license with Adidas in men's and women's sport timepieces, but this segment is pretty small so I won't spend too much time on it this early in the process. All in all, Fossil has something to offer every group outside of the 1% (and even a good portion of those within it), though they will probably never compete with ultra-luxury brands like Patek Philippe and Audemars Piguet. [Quick note: Fossil doesn't break down sales by watch segment, so this would be the first thing I'd want to ask IR about, and I'm a little bit shocked that they don't provide this or at least ballpark it.]

Fossil claims to be able to "read and react" to changing fashion trends quicker than its competitors, giving them an advantage in quickly changing out struggling styles for the newest innovative model, but I'd take this as puffery until proven otherwise. Perhaps more realistically, they cite their business model of owning the distribution in their largest markets and having the ability to offer globally-recognized brands in every area as a major advantage over any regional or local competitors. This is reasonable, but nothing out of the ordinary for any larger fashion company either, I would imagine.

Owning the majority of their distribution and having a diverse portfolio of powerful brands - both proprietary and through exclusive licenses - seem to be the biggest advantages for Fossil that we can possibly quantify. In an economically-challenging environment where consumers are forced to trade down on almost everything, offering a branded product synonymous with fashion and [some] status at a price within reach of most consumers gives a very significant edge over any competitor. While brands like Kenneth Cole or Guess have strong fashion brand recognition and offer watches in the same price range as Fossil, their names are associated more closely with apparel and non-watch accessories. Fossil is a name more closely tied to watches, possibly prompting consumers to choose Fossil over these competitors in most instances.

High startup costs and establishing long-term relationships with customers, suppliers, manufacturers, and vendors such as department stores cause the industry to have a somewhat legitimate moat, but any well-capitalized fashion name could likely enter the market for watches and accessories if already present in an area like apparel or eyewear. That said, developing a strong brand within the watch segment in particular is more difficult than leveraging an apparel brand to sell shoes, for example, as factors like workmanship become increasingly important in the watch category and require some level of manufacturing expertise. Another portion of the business model peculiar to Fossil is that their ability to consistently update their watch styles at low price points gives consumers a reason to buy multiple watches to go with whatever fashion statement they're trying to make that day. I can't imagine many people doing the same with Rolex... or Timex.

Summary Financials

Here's a snapshot of the past five years for Fossil - one of our big goals should be figuring out exactly what happened between 2009 and 2010 that caused such a big spike in sales and profitability. [I looked back at the old filings to see if there was some sort of aggressive expansion taking place, but that doesn't seem to be the case, as Fossil attributes the explosion in growth solely to rebounding general macroeconomic conditions...] [chart unavailable]

Gross margins have leveled off a bit in the past 3 years and seem somewhat steady at about 56.0-56.5%, with most of COGS coming from direct materials used in manufacturing and the licensing fees associated with some of their marketed brands. (I'd assume these fees might increase upon renegotiation of the licenses, considering the success brands like Michael Kors are seeing, so that's an area for potential concern) Fossil's highest margin sales come from its watch products and retail sales, and wholesale small accessory items typically give the worst margin, especially when sold through third-party distributors. Conversely, a licensed watch sold in a full-priced Fossil retail store would be the highest margin sale. Gross margin ends up being impacted the most by sales mix [and foreign exchange issues], so popularity of licensed brands and more traffic in the Direct to Consumer segment could be reason for the increasing gross margin since 2007.

The combination of an expanding gross margin and 25%+ sales growth has given Fossil the ability to grow earnings rather quickly, and an added boost in share repurchase activity has only made the increase more dramatic. I worry that gross margin has probably leveled off here, and could decrease if licensing gets more expensive or we see a slowdown in Direct to Consumer traffic, so those are both key to maintaining the kind of growth Wall Street has expected from Fossil recently.

Luckily for me, operating expenses are broken down by segment to give us a better idea of where the most EBIT will be coming from (in millions): [chart unavailable]

While this makes it seem like Direct to Consumer (DTC) is the least profitable group on a margin basis, keep in mind these are operating expenses, and DTC actually has the highest gross margin of any segment. Unfortunately Fossil doesn't break gross margin out specifically, but I'll try and dig that up at some point too.

From a free cash perspective, over the past few years Fossil has generated about $150M, with a ramp-up in inventories being the primary culprit behind the somewhat lower-than-expected cash flow. Inventories increased $123M in 2011 and $116M in 2012, taking up a good chunk of their cash flow each year, but with around $300M in cash at the end of 2011, they still have plenty and haven't been afraid to use it to increase inventories for store expansions or to repurchase shares, which they did in excess of their FCF for the year in 2011. Fossil historically has not paid a dividend and says it doesn't plan on giving one in the future, opting to invest in the business or buybacks.

Q2 2012 Earnings and Outlook

Moving on to an update from Q2 - Fossil reported a better-than-expected second quarter on August 7th that lifted shares by over 30% to their current level, with double digit growth coming from all segments, but particularly impressive was wholesale. Earnings per diluted share rose 15% (when compared to the same quarter in 2011) to $0.92, well above analyst estimates of $0.78. Net sales jumped 14.3% to $636M, gross margin remained virtually unchanged at 56%, while operating income was up only 2.1% to $88M, or 13.8% of net sales compared to 15.5% the same quarter last year. However, income before taxes was up 7.8% thanks to gains from hedge positions, and net income increased by 11.6% to $57M. Thanks to around 2 million repurchased shares, growth in diluted EPS was able to outpace net income growth by about 4 percentage points. All in all, a good quarter for Fossil, though management revised guidance slightly downward for H2 2012 as they prefer to remain conservative in the wake of unfavorable dollar appreciation and the threat of further global economic headwinds.

Management spent a good portion of the call addressing the problem that a strengthening US dollar has caused sales figures, so clearly I'll have to keep my eye on the FX situation down the road. That said, they noted that the $0.92 EPS figure includes about $0.04 of unfavorable exchange losses, so on a constant dollar basis they would have earned even more, $0.96, for the quarter. Despite the FX issues, Fossil was still able to grow net sales by double digits thanks to organic growth, but also via the acquisition of Skagen. Though not considerably (yet), Skagen did end up contributing to profits, accounting for $0.02 of Q2 EPS.

The Michael Kors line of jewelry performed very well, more than offsetting losses from a significant slowdown in Fossil brand jewelry. A change in sales mix that saw a higher proportion of sales coming from watches resulted in some margin gains, but these were offset by the aforementioned FX translation losses. Constant dollar sales of watches jumped 23.2%, and most notable was Asia where the increase was 27.2%, 4% of which was attributable to Skagen however. In total, of the $636M in net sales, Skagen contributed $25.2M. Excluding Skagen, worldwide net sales would have only increased 13.5% rather than 18.1% in constant dollar terms.

As of today, the company has 225 total retail locations in North America, with 51 more expected by the end of 2012 and 8 store closings. Globally, Fossil boasts 431 stores, up from 367 in the same quarter last year, though I'm not sure of the retail/outlet breakdown. So far, they've opened 25 locations internationally and expect to open 50 more while closing 16 (net 59 openings). The average sales per square foot across all stores was said to be in the $800-900 range. In aggregate, retail and outlet store comps were 1.8%, the 17th consecutive quarter of positive comps, and a number preceded by huge 22% and 15% gains in Q2 2011 and 2010.

Though they didn't give a figure for capex on these locations (up-front or upkeep), for what it's worth Fossil ended the first half of 2012 with $139M in cash, after paying $100M towards the Skagen acquisition and spending $234M in the previous twelve months on stock repurchases.

Comps were negatively affected by traffic, but were still positive thanks in part to a higher average ticket price, and management expects more of the same in H2 2012. They note that watches have continued to outperform even in weak macro environments thanks in part to an increased appetite for Swiss timepieces in Asia and from Asian tourism worldwide. They ballparked the breakdown of comps by region as low-teens decrease in Europe, low single digit increase in North America, and a high-teens increase in Asia, where they mentioned jewelry sales have doubled to $4.4M (but still obviously a fairly small piece of the pie). Comps have been more positive in outlets than regular stores, and traffic declines have been much less, though they note the jewelry category has been consistently poor across all types of stores. Branded products such as the Burberry watch line are coming out in H2 and management expects these to be as successful as the Michael Kors launch [that's a tall order...] thanks to the Asian demand for high-end watches and fashion brand recognition. Of all the brands they are licensed to sell, management noted that Armani is probably the most resilient to price increases, and they believe they can raise prices on similarly branded products in H2, especially in Europe which surprisingly shows the most resilience.

As mentioned, the Michael Kors licensed jewelry helped pull the jewelry segment out of the red, adding $7M in sales for the quarter. Leather products were up 8.2% quarter-over-quarter in constant dollars. The strength in the watch segment was worldwide, but particular strength in North America where watch sales jumped 25.2%, or $39.5M, of which $10.8M was attributed to Skagen. Shipments to subsidiaries in Canada and Mexico also posted large gains of 23.5% and 65.2% respectively during the quarter. The foreign exchange impact hurt all of these increases, however, negatively impacting sales by $21.4M in Q2 according to management. They expect further strengthening in the US dollar in H2 and forecast about 30-40bps of decrease to gross margin as a result.

Operating income showed a much smaller gain than the other major line items thanks to operating deleverage, FX losses, and approximately $4.7M in legal costs to satisfy what management only refers to as "routine business litigation." The company had a 31.4% effective tax rate and expects to end the year at a flat 31.0%. Fossil spent $82M (1.2M shares) on repurchases in Q2, and noted a total of 8.1M in repurchases over the past twelve months. They anticipate their $750M buyback program, which has about $150-175M remaining, ending in early 2013.

Moving to outlook, Fossil noted that Q3 ends earlier this year than in past years, so they expect Q4 to be stronger - and Q3 to therefore be weaker - than is typical, plus the full integration of Skagen into Fossil's distribution systems will be complete in Q4, which should help improve sales/comps and cut back on costs associated with 3rd party distributors previously used by Skagen. Management sees 11% growth in net sales for Q3 and 16% in Q4. Adjusted earnings forecasts (which adds back acquisition and integration costs related to Skagen, totaling $10-$12M so far) for Q3 and full year 2012 are $1.15-1.17 and $5.29-5.34 respectively. Management noted the main reasons for reducing guidance are a shift in sales mix in H2, the US dollar appreciation, less of a marketing push in Europe (since they actually performed decently there in Q2), and tougher comparisons in H2. [I have a hard time thinking the comparisons will be that much tougher considering they have Skagen to lift sales now, but maybe on an ex-Skagen basis] Remember from earlier that consensus on FY2012 was $5.30, so management is still guiding to meet that range, which implies that they will continue their trend of achieving 15% EPS growth.

Management

Referring back to the history of Fossil, I mentioned the firm was started in 1984 by Tom Kartsotis. Older brother Kosta Kartsotis was one of the original investors in Fossil and gets credit for giving Tom the idea to start the business in the first place, but didn't jump on board with the company until 1988 when it started to see some success. Fast-forward 15 years and Kosta is now Chairman and CEO, becoming the latter in May 2010 after his brother announced he would not run for re-election to the board. All indications are that he left to start his own venture, not due to any conflict or disagreement.

Anyway, there are quite a few things to like about Kosta Kartsotis at the helm of this company. Most obviously, he has 12 years of experience as CEO and has been with the company since its inception. In addition, he owns over 6 million shares of the company (about 10% of the market cap), making him the third largest shareholder behind only T. Rowe Price (10.2%) and Fidelity (15.2%). [One notable non-mutual fund holder is the Tiger cub Lone Pine Capital at just over 3%] He also hasn't dumped any of his stock since a November 2010 sale of about 250,000 shares at $68. He didn't sell when the stock broke above $120 and he didn't sell when it fell all the way back to the $60-$70 range, if that means anything.

Fossil doesn't appear to have much in the way of stock-based compensation either, paying out $15M, $11M, and $7M in 2011, 2010 and 2009 respectively. Options exercises in those three years amounted to $9M, $23M, and $4M, so those weren't particularly outrageous either. Management seems to have focused a lot of attention on share repurchases since the start of 2010 (when Fossil started its strong growth trend), spending $200M in 2010 and $271M in 2011 on buybacks. Dilution/overhang doesn't appear to be much of an issue here and the people in charge seem to be focused on sending at least some of that free cash back to the shareholders.

One last thing to note is that today Fossil finally found a replacement for their COO, Michael Barnes, who left in September 2010 to become CEO of Signet Jewelers. They appointed John White, former president of Pandora North America (the Danish jewelry company), to the position where he'll be responsible for distribution, supply chain, warehousing, etc. I'm curious how they've been managing for 2 years without a COO, but clearly it hasn't been too hard on them, so the amount of operational change Mr. White will bring about is probably going to be pretty small, but still to be determined.

Valuation

This initial report is getting a little lengthy, so I'll save the store visit for another day and keep my observations on valuation relatively brief. Fossil currently sits at about $86.50, with management guiding to around $5.30, so a FY 2012 multiple of about 16.3x for a company growing the top and bottom lines at 15% annually. Consensus for 2013 is about $6.10, implying earnings growth right in that 15% neighborhood, and a share price of $99.40 using the current multiple.

Looking back to the first 3-4 months of 2012, the market gave Fossil an outrageous amount of credit for its growth prospects, as the stock soared to a 52 week high of about $140 at the start of April. In mid-February, management had announced full-year 2012 guidance of 15% growth in net sales, diluted EPS of $5.40-$5.50, and Q1 2012 earnings of $0.90-$0.92 (actual Q1 earnings came in at $0.93). Investors loved the growth story, and at $130 the stock had a multiple of about 24x. In May, however, Fossil came out and said Q2 net sales would increase about 16% (or 19% in constant dollars) and earnings for the quarter would be in the $0.77-$0.79 range. They also revised full-year guidance such that net sales would increase 16% (one point higher than before) but diluted EPS would come in slightly lower at $5.30-$5.40. The stock plummeted about 40% to $78 after the change. This was later revised again after the Q2 beat ($0.92A vs. $0.78E) to a range of $5.29-$5.34, however. Oddly enough, today's midpoint 2012 guidance is less than $0.10 below the lower range given in February and the multiple is 33% lower. Growth prospects haven't really changed, and in fact were reiterated in the most recent quarter, so it's possible the market was just overenthusiastic back in April or is now under-enthusiastic in August. At first glance, my guess is it's a little bit of both, and it could be what makes this stock look cheap now.

[Though I hesitate to compare Fossil to any of these companies, for what it's worth LVMH is getting an 18.3x multiple on its forecasted 2012 earnings, while Guess is getting about 12x. Citizen, the Japanese maker of the Eco-Drive, gets 18x trailing twelve month earnings but only about 12x its 2012 consensus.]

Regardless of where the market stands on the issues, getting a company that can grow its top line by 15% while maintaining strong and steady margins down to the bottom line is probably a bargain at 15-16x and was a steal before Q2 earnings lifted the stock back up from the mid-60s (though hindsight is 20/20). With a runway in the Asia Pacific region and Direct to Consumer, plus the potential for Europe to rebound, there's a few promising catalysts that can sustain this business's sales growth for a good number of years. Management's focus on reducing the share count with free cash is only a bonus in this case. The big question marks are Fossil's ability to keep generating traffic in its DTC venues, maintaining their exclusive licensing agreements with the most popular brands (particularly Michael Kors), and a continued increase in demand for moderately priced timepieces in Asia.

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Comments (85)

  • Unforseen's picture

    Amazing, this is awesome for people wanting to break into the buy side

  • balls.mahoney's picture

    We want a model! Jk, very nice job though. This is definitely something that has been in high demand. Thanks for sharing.

  • ER_Lover's picture

    Thanks! Very interesting. Two questions:

    - How long does it take to create such an initiating report take incl. research?
    - Would a PM really read this report or rather ask for a brief summary?

  • In reply to ER_Lover
    WhiteHat's picture

    ER_Lover:
    Thanks! Very interesting. Two questions:

    - How long does it take to create such an initiating report take incl. research?
    - Would a PM really read this report or rather ask for a brief summary?

    I'd say the time depends on the analyst and also how complex the company is, but for something pretty simple like Fossil I was able to get an initial handle on the business in about 1 to 2 weeks. And depending on how deep the fund goes into its names, I expect they would though I wouldn't want to put words in anyone's mouths. This is a fairly average length initiating memo for me so it doesn't feel really long but other PMs might only want a 5 minute pitch. I personally don't think I'd do well in a fund with a manager who didn't want to know what he's investing in, or who wouldn't invest enough to make it worthwhile. It's gonna vary though.

  • Nefarious-'s picture

    This is one of the most value added posts I have ever seen on this site.

    You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake, son.

  • leveredarb's picture

    out of curiosity how would you classify your fund?

  • In reply to leveredarb
    WhiteHat's picture

    leveredarb:
    out of curiosity how would you classify your fund?

    Deep value, long-term horizon, heavy concentration. We pride ourselves on knowing our businesses very well which is probably why this thing is longer than people would expect probably. We definitely take pride in being some of the biggest nerds in the sandbox when it comes to value investing, so we're on the intellectual side of the typical long/short equity spectrum.

  • 808's picture

    I'm curious - how long did this memo take you to complete (for everything - prep, research, writing, editing, etc.)?

  • ucmaroon47's picture

    great stuff as always WH. fascinated seeing this after spending all of my time researching private companies

    And so it goes

  • BlackHat's picture

    Nice bro. Thinkin' it's time to pick up some more? I'm on the fence.

    I hate victims who respect their executioners

  • In reply to 808
    ER_Lover's picture

    808:
    I'm curious - how long did this memo take you to complete (for everything - prep, research, writing, editing, etc.)?

    See 4 posts above yours.

    "I'd say the time depends on the analyst and also how complex the company is, but for something pretty simple like Fossil I was able to get an initial handle on the business in about 1 to 2 weeks."

  • In reply to ER_Lover
    808's picture

    ER_Lover:
    808:
    I'm curious - how long did this memo take you to complete (for everything - prep, research, writing, editing, etc.)?

    See 4 posts above yours.

    "I'd say the time depends on the analyst and also how complex the company is, but for something pretty simple like Fossil I was able to get an initial handle on the business in about 1 to 2 weeks."

    Sorry - read it then commented without refreshing.

  • In reply to BlackHat
    SonnyZH's picture

    BlackHat:
    Nice bro. Thinkin' it's time to pick up some more? I'm on the fence.

    Keep them coming, I'm a sponge.

    The HBS guys have MAD SWAGGER. They frequently wear their class jackets to boston bars, strutting and acting like they own the joint. They just ooze success, confidence, swagger, basically attributes of alpha males.
  • In reply to BlackHat
    WhiteHat's picture

    BlackHat:
    Nice bro. Thinkin' it's time to pick up some more? I'm on the fence.

    I wouldn't yet... especially if it can get so much cheaper. Right here I'd be holding and start moving into the 70s and it's a safer buy probably. If you're still holding the stock I'd just be content with what I've got. Could collapse as easily as it could jump back to triple digits. Get it in the 70s though unless something changes I guess?

  • BTbanker's picture

    "The explosive growth story has been around for a while now, with sales growth of 24% and 32% in 2010 and 2009 respectively."

    Not cool man, although FY growth for 2011 was 39%.

  • Calnus's picture

    Excellent stuff. Was hoping to see something like this. Just curious, is it best to speak in first person in some parts (you used I a few times) or to stick with a team theme? (Our) Or does this depend on the PM?

  • In reply to Calnus
    WhiteHat's picture

    Jyong:
    Excellent stuff. Was hoping to see something like this. Just curious, is it best to speak in first person in some parts (you used I a few times) or to stick with a team theme? (Our) Or does this depend on the PM?

    I think it's a stylistic thing. Though probably depends on what the PM likes and what other analysts do. My team is pretty informal and write-ups typically have tons of color, personal opinion, name-calling, etc. and that makes it a lot easier to be candid and just get the ideas out without being afraid of formal speak or something. I know I tend to use the first person quite a bit.

  • xqtrack's picture

    It's interesting to see how different places approach doing write-ups...my fund is completely different; guess just emphasizes why it's important to find a place that fits your investing / thinking style. Write ups at my workplace are way shorter and focused almost entirely on the investment thesis - something that suits me personally way better; we don't do initiating coverage reports - if I pick up coverage on something and don't want to pitch it, I just keep all my notes and wait to see if there's a time it makes sense to pitch it.

    I'm not suggesting one method is better than another, but for me personally not having to write papers like this makes the job a lot more fun...

  • BTbanker's picture

    Oh, so THIS is why you want to get a Breitling. Did you make a decision on a watch yet?

  • whatwhatwhat's picture

    ive never seen an initiation report this tl;dr. from what perspective were you coming up with this?

  • GED or Bust's picture

    Great post WH. What prompted you to look into Fossil originally?

  • Nefarious-'s picture

    WHiteHate: I mod a finance board and posted your thread there. One of the users (albeit, probably a fucking idiot) post the following as a reply:

    ----------------------------------

    MistaSchlong 1 point 4 hours ago
    This is not a case study.

    This is the kind of research I readily throw away: falling accessory sales, a founder that has left, and no catalyst to cause some kind of material price divergence. The vision for the company is not clear from the article, and it's not enticing enough for me to research more on my own. I have no idea what is "very interesting" about the article, at all.
    Cited growth figures are unnecessarily unclear: is the growth consistent? What is the variance year to year?

    No clear breakdown of exposure to market risks. If anything, I want to know sales are consistent and/or robust irrespective of economic conditions in their largest markets -- I don't see that at all.

    Valuation makes too many assumptions. Further, if revenues are dependent upon Michael Kors and other brands, we need to see research on the sales growth and penetration of those brands.

    These five points absolutely need to be included in any initial examination of this particular company. It's obvious: we need a reason to dig further, otherwise it's just stock hype.

    TL;DR: Bullshit, however sweet, is still bullshit.

    ----------------------------------

    Can you please address these questions? I will relay the reply.

    You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake, son.

  • In reply to Nefarious-
    WhiteHat's picture

    Nefarious-:
    WHiteHate: I mod a finance board and posted your thread there. One of the users (albeit, probably a fucking idiot) post the following as a reply:

    If my username was WhiteHate I'd be on a Black Panther forum :)

    I think this guy (username MisterSchlong? Love it) thinks this is a stock pitch. This is really just laying out what the company does, what questions need to be asked, and where there's potential value/overvalue. I followed this up with like 8 more short research notes on calls and channel checks that answer most of the questions he's asking (though things like growth figures and all that are already in there, I'm sure he didn't look) and actually start to paint an investment thesis. Again this is just an example of how an analyst might introduce a stock to the PM or the rest of the fund, not a pitch with an opinion. You don't really initiate coverage with an opinion unless you want to get fucked.

  • Aldushy's picture

    Very nice. Always appreciated the materials you
    post WH.
    Thanks for sharing.

    Death is certain; Life aint.

  • In reply to WhiteHat
    Nefarious-'s picture

    WhiteHat:
    Nefarious-:
    WHiteHate: I mod a finance board and posted your thread there. One of the users (albeit, probably a fucking idiot) post the following as a reply:

    If my username was WhiteHate I'd be on a Black Panther forum :)

    I think this guy (username MisterSchlong? Love it) thinks this is a stock pitch. This is really just laying out what the company does, what questions need to be asked, and where there's potential value/overvalue. I followed this up with like 8 more short research notes on calls and channel checks that answer most of the questions he's asking (though things like growth figures and all that are already in there, I'm sure he didn't look) and actually start to paint an investment thesis. Again this is just an example of how an analyst might introduce a stock to the PM or the rest of the fund, not a pitch with an opinion. You don't really initiate coverage with an opinion unless you want to get fucked.

    Hilarious typo on my part.

    You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake, son.

  • In reply to WhiteHat
    BigHedgeHog's picture

    WhiteHat:
    Nefarious-:
    WHiteHate: I mod a finance board and posted your thread there. One of the users (albeit, probably a fucking idiot) post the following as a reply:

    If my username was WhiteHate I'd be on a Black Panther forum :)

    I think this guy (username MisterSchlong? Love it) thinks this is a stock pitch. This is really just laying out what the company does, what questions need to be asked, and where there's potential value/overvalue. I followed this up with like 8 more short research notes on calls and channel checks that answer most of the questions he's asking (though things like growth figures and all that are already in there, I'm sure he didn't look) and actually start to paint an investment thesis. Again this is just an example of how an analyst might introduce a stock to the PM or the rest of the fund, not a pitch with an opinion. You don't really initiate coverage with an opinion unless you want to get fucked.

    This is wrong. You want to initiate with an opinion and dig deeper if the team thinks it's interesting. By publishing this "INIT" report without stating an opinion and stating where the opportunity is, you just wasted your and everyone's time reading it. Even worse, your team has to give you _more_ time to write your next 8 reports until you come to an opinion!

    Spending 2 weeks on this is unacceptable. it doesn't take that long to read 2 K's and speak to a few SS analysts to see where the misunderstanding is. Long term value does not mean spend a lot of time looking at random stuff writing long winded reports.

  • In reply to BigHedgeHog
    Nefarious-'s picture

    BigHedgeHog:
    WhiteHat:
    Nefarious-:
    WHiteHate: I mod a finance board and posted your thread there. One of the users (albeit, probably a fucking idiot) post the following as a reply:

    If my username was WhiteHate I'd be on a Black Panther forum :)

    I think this guy (username MisterSchlong? Love it) thinks this is a stock pitch. This is really just laying out what the company does, what questions need to be asked, and where there's potential value/overvalue. I followed this up with like 8 more short research notes on calls and channel checks that answer most of the questions he's asking (though things like growth figures and all that are already in there, I'm sure he didn't look) and actually start to paint an investment thesis. Again this is just an example of how an analyst might introduce a stock to the PM or the rest of the fund, not a pitch with an opinion. You don't really initiate coverage with an opinion unless you want to get fucked.

    This is wrong. You want to initiate with an opinion and dig deeper if the team thinks it's interesting. By publishing this "INIT" report without stating an opinion and stating where the opportunity is, you just wasted your and everyone's time reading it. Even worse, your team has to give you _more_ time to write your next 8 reports until you come to an opinion!

    Spending 2 weeks on this is unacceptable. it doesn't take that long to read 2 K's and speak to a few SS analysts to see where the misunderstanding is. Long term value does not mean spend a lot of time looking at random stuff writing long winded reports.

    I'll wait for you to post your initiating report on Fossil.

    You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake, son.

  • jonmorris's picture

    WH - Thanks for the post.
    Did you also model it out?
    Is there a process you could share of how you approach initiating on a company and is this the most comprehensive write-up, or just an intro for a PM who may tell you to write up a longer piece?
    Thanks again. Takes balls to post your work up like that.

  • JobHopeful's picture

    Thanks for sharing this, WH.

    To everyone hating on this, I don't feel that WH meant for this to be a section by section template to use. This is simply what he uses and what works for him and his firm. Each firm most likely has different methodologies for how to write a report and how detailed it needs to be.

    If you don't like this, please share an old (or new) report of your own and people can discuss the differences. I think this would be great for anyone trying to get into the field.

  • In reply to BigHedgeHog
    WhiteHat's picture

    BigHedgeHog:

    This is wrong. You want to initiate with an opinion and dig deeper if the team thinks it's interesting. By publishing this "INIT" report without stating an opinion and stating where the opportunity is, you just wasted your and everyone's time reading it. Even worse, your team has to give you _more_ time to write your next 8 reports until you come to an opinion!

    Spending 2 weeks on this is unacceptable. it doesn't take that long to read 2 K's and speak to a few SS analysts to see where the misunderstanding is. Long term value does not mean spend a lot of time looking at random stuff writing long winded reports.

    I'll echo what a few other people said. This is what works for us and is not going to be the same for everyone. And not to start a pissing contest here but when you initiate on a name where I work, it means you are now the authority on that name. If all I did was read 2 K's and "speak to a few SS analysts" (do people seriously do this? If you speak to sell-siders for more than 15 minutes in a lifetime I don't think there's any help for you) then I don't think I'd be much of an authority. This is simply an initiation. There's no opinion yet because we don't know the company up to our standards yet. We emphasize knowing our businesses, and even though my spending 2 weeks on Fossil probably resulted in me knowing more about the firm than most analysts that own the name do, I'm still not in a position to feel comfortable with it so there's no advocacy in either direction by me as an analyst. Everyone looks at names differently, but this is the way we do it and I'm trying to give the perspective to people who might be interested in a philosophy like that. I personally wouldn't stand behind the company until I know what kind of toothpaste Kosta's kids use. But some PMs might pull the trigger after reading a single sell-side report because that's just how they roll.

  • In reply to jonmorris
    WhiteHat's picture

    jonmorris:
    WH - Thanks for the post.
    Did you also model it out?
    Is there a process you could share of how you approach initiating on a company and is this the most comprehensive write-up, or just an intro for a PM who may tell you to write up a longer piece?
    Thanks again. Takes balls to post your work up like that.

    Yeah this is just an intro. The PM might swing by and say it sounds interesting and keep looking into it, and that might result in some more comprehensive stuff and some more in-depth field-level research. And yeah I'll usually model it out after I've got a grasp on the business and then the model becomes a continuously evolving process as we learn more from the experts or whoever else we go to for info.

  • In reply to bananawarfare
    WhiteHat's picture

    bananawarfare:
    Can I say you are awesome?

    do you mind writing a stock pitch for fossil as well? Thank you so much!!

    Haha thanks! Unfortunately I never ended up recommending Fossil because the more we looked into it the scarier it looked and there's still too many question marks for me to want to recommend it at all so I don't have any actual pitch for it. I'll make it a point to write up an actual pitch/recommendation with sizing and some other more logistical stuff on a company we actually added in some future blog post when I get the chance though!

  • In reply to WhiteHat
    BlackHat's picture

    WhiteHat:
    "speak to a few SS analysts" (do people seriously do this? If you speak to sell-siders for more than 15 minutes in a lifetime I don't think there's any help for you)

    I had dinner with one once. There was no help for me.

    I hate victims who respect their executioners

  • In reply to WhiteHat
    BigHedgeHog's picture

    This is not a pissing match. I'm just trying to get straight to the point. If this is what you do then you won't get to look at more than 30 ideas a year. The SS is useful as a resource as you can see what the "misunderstanding" is (whether they know why the mispricing exist or maybe they are the mispricing).

  • In reply to BigHedgeHog
    BlackHat's picture

    BigHedgeHog:
    This is not a pissing match. I'm just trying to get straight to the point. If this is what you do then you won't get to look at more than 30 ideas a year. The SS is useful as a resource as you can see what the "misunderstanding" is (whether they know why the mispricing exist or maybe they are the mispricing).

    WH's fund (whether he likes it or not) is a lot like mine, and most are not like that, and not sure if he mentioned that or not... but maybe 30 ideas a year doesn't sound like a lot to some people? But I don't think I've even had 30 ideas total in a 6 year career.

    I hate victims who respect their executioners

  • BigHedgeHog's picture

    Maybe let me back track a bit and rephrase. 30 ideas is _a lot_ in a year. But looking at 30 companies isn't a lot. A good analyst should be able to come up with a few good ideas a year. But you need to look at a lot more companies. Even if your hit ratio is 1 in 5 (invest in 1 for every 5 companies you look at), you need to look at more than 30.

    Then again, if you are a sector specialist who only looks at the 30 or so companies in a sector (eg: only retailers) then maybe 30 is a good #. But even then, you'll know all the companies already that are in the space.

  • In reply to WhiteHat
    akim89sp's picture

    WhiteHat:
    BigHedgeHog:

    If all I did was read 2 K's and "speak to a few SS analysts" (do people seriously do this? If you speak to sell-siders for more than 15 minutes in a lifetime I don't think there's any help for you) then I don't think I'd be much of an authority. This is simply an initiation.

    Great report. I follow the name also.

    Why not use an SS report to get familiar with the elementary/generic parts? Management history, competitive landscape, etc. For your own diligence, you can spend an hour or two looking it up yourself but a sell-side analyst might be able to sum it up for you and probably give you some additional info about the management team that is not available in filings, transcripts, google. Also the analyst might cover competitors or some of the licensed brands and provide you with potential read-throughs that you might have discovered in your latter half of researching.

    I ask this because buy-side analysts have to cover more names and might not have the time, right? But I'm also not implying that you (as a buy-side analyst) shouldn't do your own homework.

  • In reply to BlackHat
    akim89sp's picture

    BlackHat:
    WhiteHat:
    "speak to a few SS analysts" (do people seriously do this? If you speak to sell-siders for more than 15 minutes in a lifetime I don't think there's any help for you)

    I had dinner with one once. There was no help for me.

    Some are, some aren't. But we all get a free dinner. My analyst loves to order $200 appetizers (didn't know it was possible). But you're probably at the point in your life where you aren't wooed so easily.

    If you're into sports, ask for playoff tickets.

  • In reply to akim89sp
    BlackHat's picture

    akim89sp:
    BlackHat:
    WhiteHat:
    "speak to a few SS analysts" (do people seriously do this? If you speak to sell-siders for more than 15 minutes in a lifetime I don't think there's any help for you)

    I had dinner with one once. There was no help for me.

    Some are, some aren't. But we all get a free dinner. My analyst loves to order $200 appetizers (didn't know it was possible). But you're probably at the point in your life where you aren't wooed so easily.

    If you're into sports, ask for playoff tickets.

    Damn that's a good idea haha. And no I joke about SS guys because although they're really good resources for objective information and some insight on management, I never want to take their opinions at face value for my own benefit and just because they could be motivated by something other than helping me! Free dinners are a plus though.

    I hate victims who respect their executioners

  • In reply to Nefarious-
    roofstreet's picture

    dude i love your signature...

    Nefarious-:
    This is one of the most value added posts I have ever seen on this site.

    "...the art of good business, is being a good middle man, putting people togeather. It's all about honor and respect."

  • In reply to Nefarious-
    roofstreet's picture

    dude i love your signature...

    Nefarious-:
    This is one of the most value added posts I have ever seen on this site.

    "...the art of good business, is being a good middle man, putting people togeather. It's all about honor and respect."

  • In reply to Nefarious-
    roofstreet's picture

    dude i love your signature...

    Nefarious-:
    This is one of the most value added posts I have ever seen on this site.

    "...the art of good business, is being a good middle man, putting people togeather. It's all about honor and respect."

  • In reply to BigHedgeHog
    tkaelle's picture

    BigHedgeHog:
    Maybe let me back track a bit and rephrase. 30 ideas is _a lot_ in a year. But looking at 30 companies isn't a lot. A good analyst should be able to come up with a few good ideas a year. But you need to look at a lot more companies. Even if your hit ratio is 1 in 5 (invest in 1 for every 5 companies you look at), you need to look at more than 30.

    Then again, if you are a sector specialist who only looks at the 30 or so companies in a sector (eg: only retailers) then maybe 30 is a good #. But even then, you'll know all the companies already that are in the space.

    If the hit ratio is 1 in 5 and a few good ideas a year is acceptable, then wouldn't you have to look at 15 companies to come up with 3 ideas? Unless you're even further differentiating ideas you pitch and ideas you pitch that are good.

    Not trying to be facetious or anything, just trying to understand. I'm not even in the industry. So how many companies can you look at in a year? Much higher than 30 and you'd be averaging one research idea a week. Seems high to me, but maybe that's what you guys do?

  • In reply to BlackHat
    tkaelle's picture

    BlackHat:
    BigHedgeHog:
    This is not a pissing match. I'm just trying to get straight to the point. If this is what you do then you won't get to look at more than 30 ideas a year. The SS is useful as a resource as you can see what the "misunderstanding" is (whether they know why the mispricing exist or maybe they are the mispricing).

    WH's fund (whether he likes it or not) is a lot like mine, and most are not like that, and not sure if he mentioned that or not... but maybe 30 ideas a year doesn't sound like a lot to some people? But I don't think I've even had 30 ideas total in a 6 year career.

    BlackHat - what are the characteristics of your (and WhiteHat's) fund's style of investment that separate it from other value long/shorts? Longer time researching each idea, longer investment horizon? Anything else?

  • In reply to tkaelle
    BlackHat's picture

    tkaelle:
    BigHedgeHog:
    Maybe let me back track a bit and rephrase. 30 ideas is _a lot_ in a year. But looking at 30 companies isn't a lot. A good analyst should be able to come up with a few good ideas a year. But you need to look at a lot more companies. Even if your hit ratio is 1 in 5 (invest in 1 for every 5 companies you look at), you need to look at more than 30.

    Then again, if you are a sector specialist who only looks at the 30 or so companies in a sector (eg: only retailers) then maybe 30 is a good #. But even then, you'll know all the companies already that are in the space.

    If the hit ratio is 1 in 5 and a few good ideas a year is acceptable, then wouldn't you have to look at 15 companies to come up with 3 ideas? Unless you're even further differentiating ideas you pitch and ideas you pitch that are good.

    Not trying to be facetious or anything, just trying to understand. I'm not even in the industry. So how many companies can you look at in a year? Much higher than 30 and you'd be averaging one research idea a week. Seems high to me, but maybe that's what you guys do?

    This really depends on the concentration of positions and the type of fund. I probably have 2-3 good ideas a year and am working on 1-2 new ones at any given time. Then of course following up on anything in the portfolio that is my responsibility in any way would round out my workload. My "hit ratio" as defined by a position we take for every X companies I look at is probably more like... 5% maybe. Then again your hit ratio can't be very high when you hold 15-20 names for several years at a time.

    I hate victims who respect their executioners

  • Patty's picture

    Incredible waste of time.

    Two weeks of research to THEN decide whether you want to go ahead and determine it to be a worthy investment company?

    Sellside operate under this "initiating" model because they are mandated to cover a specific company. Buyside should only go into this level of depth after already determining (at higher level initially) that this is already a VERY COMPELLING investment based on XYZ thesis - then proceed to do this level of research in validating/disproving that thesis. If primary value-creating block of thesis does not hold up, abandon investment idea and move on.

    Inefficient use of time - only spend time investigating/researching in depth after confirming there is a compelling opportunity to investigate.

  • In reply to roofstreet
    Nefarious-'s picture

    roofstreet:
    dude i love your signature...

    Nefarious-:
    This is one of the most value added posts I have ever seen on this site.

    Thanks dude, it is from one of Daniel Craig's early movies called "Layer Cake" - if you haven't seen it, I highly suggest it.

    You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake, son.

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