Fossil Comeback?

(MENAFN- ValueWalk) One morning when I was in elementary school, a classmate of mine proudly walked into homeroom wearing a brand-new, nice-looking watch. I still remember it had a shiny silver band with a blue face.

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And I remember being very jealous.

I asked what kind of watch it was, and he said, 'Fossil.'

Ever since then, I've been a fan of Fossil products and have owned several. I think they look great and are very affordable.

Unfortunately, traditional watches are starting to die out, due to the surging popularity of smartwatches, and the traditional watch was Fossil's main product.

When people think of smartwatches, they typically think of the Apple Watch. But while it's true that Apple is the biggest name when it comes to smartwatches, there are other companies out there that are going all-in on the market. One such company is Fossil Group Inc. (Nasdaq: FOSL).

Remember, investors look to the future. Since Fossil did not have a clear-cut plan at first, everyone sold out of Fossil. Instead, they invested in other companies that were capitalizing on the smartwatch revolution.

But Fossil showed that it was serious about its future when it partnered with Google, which holds nearly one-fifth of the current smartwatch market share with its Android Wear brand.

Over the past year, Fossil has put an extreme focus on becoming a key player in the smartwatch market. This year, it is aiming to double its amount of smartwatch products to about 300.

Fossil also has set a goal to increase its number of brands from nine to 14, and increase its points of distribution from 8,500 to 11,500.

Its management knows that the demand is there. All Fossil has to do is fill the open market space.

And Fossil does know how to dominate a market. In 2013, the company held an impressive 44% share of the traditional watch market.

The bottom line is, it's not too late for Fossil to succeed. The smartwatch market is expected to grow 170% between 2016 and 2020. And considering what Fossil has done in the past year, there is no reason it can't take advantage of that expanding market space.

Also, in Fossil's most recent conference call, its chief financial officer stated that it expects revenue from its wearables for this year to be in the mid-300s to low 400s (in millions). That's great news considering that three years ago Fossil had virtually no smartwatch products at all.

The other reason is simple: Its stock is extremely undervalued.

Back in 2014, everyone sold off at once, causing the stock to drop straight down for over three years. Now, the company is valued at a measly $442 million.

There are a lot of reasons why this is way too low. The big one is this: If Fossil liquidated everything and paid off all its debt and liabilities, there would still be around $600 million left in equity.

So at $442 million, it could shut down its business, sell all its assets, pay off any debt and still technically be undervalued.

Another reason is that Fossil makes $500 million to $700 million in revenue in a single quarter. A company that is valued at less than one quarter's revenue is almost unheard of, and when you do hear about it, the company is usually in danger of going bankrupt.

But that's not the case with Fossil. Remember, it would have over $600 million left over after paying off all its liabilities.

Overall, there are two main reasons that Fossil is a great buy at these prices.

One, it's fixing its entire business plan in response to the collapse of its stock.

And two, its total stock value is way less than what the company would be worth in a worst-case scenario.