I am sure a lot of you have heard about $SKUL’s crazy short interest; if not, here are some info about SKULnation.
- has 11.6M shares short giving this stock a 72.11% short interest — that’s significant!
- Mean analyst target price of $23.18; low $17 and highs at $33.
- Average volume of 460K
- has beaten earnings estimates each quarter
Just moments ago, I just found out that 4 directors of the company exercised their options for shares on Monday, June 30th; I am not sure if this is legal for the directors to exercise their contracts to get stock right before earnings, but I guess it is fine considering that their lawyer signed off on it?
Each of them exercised options for 6,319 shares; that’s a total of 25,726. If Skullcandy beats earnings tomorrow, it could create a HUGE short-squeeze, and if it hits the mean target price of $23.18 tomorrow, each of the directors would earn a nice juicy bonus of $54,532.97. To be honest, this looks super sketchy; c’mon, are directors really allowed to do this? I am expecting them to beat earnings estimates now because they exercised it and I have not gotten an email from their investor relations department (from signing up on their website) informing me about a form 4 filing. Exercising an option should be a T+3 day settlement; what that means is that the option gets exercised on trade date, and gets settled 3 days after; so they get their shares tomorrow right before earnings.
I do not see why they would exercise options if earnings are going to be horrible tomorrow and they are not going to beat estimates. Even if they were forced to exercise options, why would a sane person without insider information exercise it a few days before earnings just to risk not making money or as much money as they can? Would someone really want to risk their bonus this year by exercising their options going into earnings blindly? I do not know about you guys but earnings season has sucked, so I would definitely not. And if it was one director exercising their options going into earnings, I would have thought that he/she is a ‘tard because that is gambling for a huge bonus this year, but it is not; there are 4 directors that are doing it.
Does this seems like insider trading, or is just a way to get around by exercising options and not announcing it to the public? Seriously, are they really allowed to exercise options a few days before so they can earn free money? I guess so. Be that as it may, they can sell those shares any time they want tomorrow but I doubt it since they get shares tomorrow; that would defeat the purpose of exercising the options T+3 before earnings — my opinion.
Be that as it may, let’s take a look at something else that is more interesting than speculating if they(directors) are violating SEC insider trading rules; let’s look at options volume.
Taking a look at the call options, people are buying up to play earnings or maybe shorts are buying it to hedge their short positions; if not, that would be pretty stupid considering the potential for a huge short squeeze. Puts have volume too but just not as much as the calls, but hey, there are always two sides to this game.
Another skeptical I article I read in a Yahoo forum that hasn’t been confirmed yet is a Morgan Stanley analyst report that came out the day before earnings?
Wednesday, August 1, 2012 — 12:37 PM ET
Morgan Stanley was out with some channel check data for Recommended List selection Skullcandy yesterday.
Analyst Jay Sole noted five positives from store checks, writing: “1) We believe SKUL 2Q RadioShack sales improved from 1Q, corroborating RSH management 2Q earnings call commentary; 2) Maintained positioning at Best Buy with improved traction on $299 ‘Mix Master’ product; 3) Ongoing leadership at Target with strong sales of the new, higher priced ‘Hesh’ model; 4) Smooth transition to new packaging. 95+% of product observed was in new packaging and unlike 1Q, we observed very little 2Q discounting; 5) Apple store’s newly increased, 50% larger headphone assortment.”
He also noted one negative, adding: “While Apple’s enlarged headphone assortment was a positive, SKUL lost ‘peg’ share. Importantly, we think new product from Monster Cable gained pegs. The separation of Beats Electronics from Monster may have created two competitors out of one. We see Monster making few inroads at TGT, BBY, or RSH, but we are monitoring this direct threat.”
Sole is expecting a largely in-line quarter (he’s 2 cents above the consensus), and that the stock should grind higher. He doesn’t think a small earnings beat will lead to a short squeeze, however. The analyst has an “overweight” rating and $21 price target on the stock.
BMR Take: Skullcandy still has a huge short interest, as bears continue to believe the company sells a commodity product where brand doesn’t matter. However, if branding can drive the sales of handbags, sneakers, jewelry, and yoga pants, we think it can drive the sales of headphones, which are becoming much more of a fashion accessory among today’s teens and young adults. Meanwhile, the proliferation of media devices (smartphones, tablets, iPods, etc.) is helping fuel headphone growth.
Trading at about 10x the 2013 EPS consensus of $1.44 with a strong balance sheet and projected high-teens growth, we think Skullcandy remains undervalued. However, it’s going to have to continue to successfully execute to eventually shake the shorts. We rate the stock a “Buy” with a $20 target. -via Yahoo forums
If someone could confirm the article above, that’d be great. And if that article is true, it seems like there is a high probability that earnings are going to be good tomorrow with significant call options, buying volume within the past few days, and insider exercising their contracts right before earnings to get a piece of the action.
UPDATE: the shares given to the directors are restricted ’till the next annual meeting or Jan 2013 “Represents 6,319 Restricted Stock Units (“RSUs”) granted to the Reporting Person on July 30, 2012 under the Issuer’s Amended and Restated 2011 Incentive Award Plan (the “Plan”), which RSUs vest upon the earlier of (1) June 15, 2013 or (2) the next annual meeting at which one or members of the Board of Directors (“Board”) are standing for re-election, subject in either case to the Reporting Person’s continued service on the Board through such date.”
credit goes to 500kmin
6 Responses to Secret form 4 filing before earnings?
I thought there was a “quiet” period before earnings (2 weeks?) in which no “insider” was permitted to trade the security.
Motley Fool’s definition of quiet period is
“Although earnings season fills the media with the lastest information from companies, the period immediately before reporting is a quiet period when companies are not allowed to say anything about earnings (while they close their books and collect the numbers to be reported). This period of little news lends itself to more speculation and rumors reported as news. In German this season is often called sauergurkenziet (sour pickle time), usually translated at “silly season.”
so i guess they are allowed?
those were stock options given, further diluting the company (not stock bought).
you’re right, it does dilute the company, but even so, are they allowed to exercise before earnings? because when they get the stock today, they can sell it any time they want and why would they sell it right now for only ~14 a share instead of ~20?
Dude it’s restricted stock that they cannot sell till june 2013… No conspiracy here move along.
shit, you’re right; i did not see that.
thanks for the dialogue.