The Plunge at Coach

In the last year, shares of Coach ($COH) have plunged from a high of $79.70 to a low of $45.87. The stock is currently at $48.43. The dropoff appears to be due to a rather modest decline in the company’s earnings acceleration.

Here’s a chart of Coach stock price in black (left scale) along with its earnings-per-share in gold (right scale) and Wall Street’s estimate in red. The two lines are scaled at a ratio of 16-to-1 so whenever the lines cross, the P/E Ratio is exactly 16.

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The stock had a brief rally last week on rumors that Coach was putting itself up for sale. This turned out to be untrue. Coach recently reported weak holiday sales. I can’t say how serious Coach’s problems are but the company is working hard on new strategies. The problem with retail is that Coach is no longer seen as a premium brand especially compared with Michael Kors ($KORS).

If the Street’s outlook is correct, then the stock is pretty cheap. Going by my World’s Simplest Stock Valuation metric, Coach is about 25% undervalued.

Posted by on March 4th, 2013 at 1:06 pm


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