Shares of Coach are down more than 50% since their highs in 2012, due to increased competition in their industry from the likes of Michael Kors, leading to falling American sales. The company now seems to be battered down to acceptable levels, leaving the fashion company undervalued as well as poised for success in the future.
International Sales Still Strong
Asian markets are still offering Coach incredible growth potential. Sales are being projected to grow 60% over the next five years in China and Japan. The company is aiming to open more stores internationally over the next few years, and establish their footprint there before any other competitors do. The company’s margins in China are also astoundingly high: over 70%. The company’s earnings in China contrast perfectly with those in North America; sales are projected to fall over 20% in North America in the next year, and margins remain at acceptable levels of about 20%.
New Designs
The company’s old bags have obviously fell out of fashion with customers, especially when compared to Michael Kor’s products. In order to respond to this fall in demand, Coach hired a new designer, Staurt Vevers, to try and get Coach’s products popular again. It’s up to consumers whether or not they buy Coach’s new products, but the hiring of Vevers does demonstrate that the company’s management is taking large steps to try and turn their company around.
Current Stock Conditions
Perhaps one of the most interesting factors of Coach’s stock is that their dividend has not been cut since their stock began declining. Although the company didn’t increase their dividend in 2014, their yield is still 3.90%, an above average yield, especially for a company in decline. Their net income and cash hoard are more than enough to support their dividend, as their payout ratio is just 41%, and the payout ratio based on future earnings projections is still only about 60%. They also have about $860 million is cash, and only $140 million in debts. The P/E ratio of the company is low, sitting at a trailing amount of 11. Profit margins are still positive, at 16%. All these factors show that the company is still profitable, with low valuations and a sustainable high yield. Shares are definitely not worth 50% less than their 2012 highs.
Coach is still an iconic brand that can find growth in emerging markets as well as in their new designer, Staurt Vevers. The current stock conditions are fair and show that the company is definitely worth more than it is currently valued at.
Stock Investing Advisor 