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Comparing Stock Price Performance and Valuation

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Coach’s stock has gained 12% year-to-date

Coach (COH) has done reasonably well in the stock market this year. As of November 2, 2016, the company was sitting on a YTD (year-to-date) profit of 8.4%. It has outperformed the S&P 500 Apparel and Accessories index, which had fallen 5.5% YTD. Coach, along with six other apparel and accessory companies, is part of the S&P 500 Apparel and Accessories index.

Michael Kors (KORS), which is also included in the index, has done even better. The stock had risen more than 25% YTD. However, Ralph Lauren (RL), Hanesbrands (HBI), and VF (VFC) had fallen 12.3%, 18%, and 13%, respectively.

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Coach’s stock could gain 23% over the next year

Wall Street has assigned Coach a target price of $43.73, which indicates an upside potential of about 23% over the next 12 months. Analysts see a better upside for competitor Kate Spade. The company’s target price indicates a gain potential of 43% from its current price.

Atlantic Equities has assigned the highest target price to Coach, of $54, while Goldman Sachs and Morgan Stanley have assigned the lowest target price, of $32.

Comparing valuation

Coach is currently trading at a one-year forward price-to-earnings ratio of 16.2x. It trades at a premium to Michael Kors (10.7x) but a discount to Kate Spade (17.3x).

The valuation of these three companies seems to be factoring in their earnings potential correctly. Michael Kors, which has the lowest price-to-one-year forward earnings ratio, is expected to grow at the slowest pace among the three competitors. Its EPS (earnings per share) are predicted to rise 3% this fiscal year and 6% next year.

Kate Spade, which has the highest valuation among the three companies, is likely to see its earnings rise 31% this year and 36% next fiscal year. Coach lies in the middle, both in terms of valuation and expected earnings growth. Its EPS are forecast to grow 8.6% this year and 11.4% next fiscal year.

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