Why Skullcandy Could Be Coming Back

In a report published Tuesday, Wunderlich Securities analyst Rommel Dionisio initiated coverage of Skullcandy, Inc (NASDAQ: SKUL) with a Buy rating and a price target of $13.

In the report Wunderlich Securities noted, "After increased competition from Apple's (NASDAQ: AAPL) Beats by Dre, as well as sharp price discounting by retailers resulted in a disappointing 29% sales decline in 2013 following a comprehensive turnaround effort made by the new management team, Skullcandy's momentum bounced back successfully last year, with sales displaying an encouraging 18% rebound in 2014."

The new management has implemented some growth initiatives over the past several quarters, and these seem to be bearing fruit. These initiatives were "instrumental for the turnaround effort," Dionisio said.

One such successful initiative was the focus on "the sub-$100 price point segment." With this, the company aimed at "offering consumers a more attractive price/value proposition, expansion into new product categories such as premium gaming headphones and Bluetooth speakers, and growing the international retail distribution network," the analyst explained.

Dionisio believes there remains "considerable room, not only for top-line growth, but also margin expansion through fixed cost leverage going forward."

"Given Skullcandy's rebounding its top-line momentum, the new management team establishing a solid track record, and the potential operating leverage from fixed SG&A cost absorption, we believe the stock valuation warrants a 30% premium to the peer group average," the report added.