Bullish on FOSL

I consider that as time passes the market in general will continue to move up as investors become used to the constant Euro-zone worries. FOSL will move as the market does. FOSL has shown that it can rally 50% in just a month, as it did in October. The short percent of float in the stock is at 7.87% (as of 11/30). At 4.130M, the amount of shorts is very significant compared to prior amounts of short positions in the past. The market is very bearish on FOSL currently, and I believe that as it starts to tick up with the general market, a lot of shorts are going to get squeezed. Furthermore, one has to consider the possibility of a late-year rally in the market that can move into the first half of January, particularly in consumer discretionary stocks as the holiday season can provide a boost to the sector. The fundamental bearish argument against FOSL is that gross margins will be pressured due to the recent weakness of the euro and the recent strength of the dollar. The risk is also present of a future increase in Chinese wages, which is expected to take place in the spring of 2012. However, management believes that the GM pressures can be offset by a higher mix of direct-to-consumer and Asia sales. For the long-run, the watch trend is expected to continue, particularly in Asia and Latin America due to the increasingly growing middle class. FOSL is currently working on expanding in Asia. It sees reaching $1 billion in revenues from Asia compared to the $305 million it makes today in the region. The fact that the company has bought back 2.1 million shares at $195 million and that it still has $338 million authorized for further repurchases demonstrates the strength of the company and its confidence in its own future. This will help to further increase EPS and appreciate the stock price. FOSL stands on $225 million cash net of debt. As of yesterday's close, it is trading at a P/E of 20.40. FOSL's net income experienced a CAGR of 28% during the 5 years leading up to 2010. Revenues increased 31.17% in 2010 and net income increased by 83.58% in that same year. It is projected that its bottom-line is to grow at a yearly rate of 20% in the following years. Using the current price and the earnings growth estimate of 20%, it is currently fairly priced at a PEG of 1. Ten analysts have it as a buy and five have it as a hold, with 0 suggesting to sell. The average analyst target price is $113, representing a 31.5% gain from yesterday's closing price near $86. It is to report earnings on Feb. 14, and, I believe that a price of $112 will be reached much before that. I consider that, fundamentally, FOSL is a very strong buy in the high $70s and low $80s. I would look to get out at a price above $110 whenever the technical indicators point to a change in momentum in order to secure my profits in this volatile and headline-driven market.