Skullcandy, Inc.        *Update*       Market Price (1/16/13):  $7.03

With so many shares being sold short through the end of 2012 and Jefferies Group, Inc. recommending the selling of SKUL shares, Skullcandy stocks dropped to an all-time low of $6.70 on Jan 3, 2013. With stock prices so low, word started getting out that several Private Equity firms, including Roth Capital, are keeping a close eye on Skullcandy for a possible takeover.

With Skullcandy being in the 96th percentile of the cheapest stock to buy in the Russell 2000 index, any investor would steal the cheap, consistently profitable, audio company. 

So Why the Drop?

Beats by Dre exceeded market expectations and cut into the market share of Skullcandy. Even though Skullcandy has come out with several new products in order to stay competitive, it has not been able to get out of the teen-to-twenties male target market, allowing Beats to have larger market share overall. 

The extremely high amount of shares float (shares held by public investors that are available for trading in the market) sold short killed the stock price. By flooding the market with shares, the supply far outweighed the demand, dropping the prices over and over again.

What To Do?

Hedge Funds are loving Skullcandy right now. They have already made a killing on the short position, shorting nearly 60% of SHROUT in Nov and Dec. Now only 30% of shares are being sold short since the PE firms are targeting Skullcandy for a takeover. These hedge funds that bought back the stock at a low price now want to see the price shoot up to make even more money.

If you currently hold shares of Skullcandy, I would hang onto them and wait for the price to rise even more. If someone actually makes an offer on the company, the price will increase. However, it is not known if Skullcandy even has intentions of selling the company so keep that in mind when holding onto your stock. 


I am excited to see the 2012 4th Quarter earnings report that is set to come out Feb 18. Expectations are high and I expect the Q4 earnings to exceed expectations, sparking excitement about the future of the company.

Keep your eye out and watch the PE firms for possible bids on Skullcandy.

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