Michael Kors (KORS) tumbled Friday on news that its largest shareholder was bailing out on the company. That’s just the latest setback in what has been a lost year for Kors stock despite surging sales and earnings.

After putting up huge gains in the two years after a 2011 initial public offering, the luxury retail stock has hit a wall. Michael Kors stock is down 5.5% on the year, lagging the broader market by more than 13 percentage points.

If that weren’t bad enough, the stock has tanked 20% over the last six months. What looked like a great holding for 2014 back in March has turned into a portfolio-burner.

So what’s ailing KORS? It certainly isn’t the valuation. If analysts are right, Kors is a growth stock trading at a bargain valuation. Revenue is forecast to increase 30% this year and more than 20% next year. Furthermore, analysts project earnings to post a compound annual growth rate of 23% a year over the next five years.

Yet even with those hot numbers, Michael Kors stock trades at just less than 19 times forward earnings. Shoot, McGraw Hill Financial (MHFI) — not exactly a hot-growth stock — gets a bigger multiple than that.

Part of the problem is that’s it’s been a tough year for plenty of luxury retail names. Tiffany (TIF) is up for 2014, but Polo Ralph Lauren (RL) and Coach (COH) are down. Kate Spade (KATE) is flat. Furthermore, none of the luxury names are getting anything like premium valuations. In this group, a P/E of 19 is pretty good.

Kors Is Overexposed

What’s really weighing on Michael Kors stock is a fear that the company expanded too quickly for its own good. That risks making the elite brand overexposed, which is a horror show all its own in the unique world of fashion. After all, Coach’s downfall is largely attributed to it expanding too fast, especially to outlet malls, which tarnish the brand and cannibalize full-price sales at regular locations.

It also stokes fears that KORS expanded too rapidly into waning demand, which raises the specter of having to offer discounts in order to move inventory. Even luxury shoppers have become tighter with their disposable income, and that’s forcing high-end stores to lure customers in with margin-killing markdowns and other promotions.

Nothing scares investors like the specter of contracting margins.

Kors’ most recent quarterly results beat Wall Street estimates easily, but management issued a warnings on margins. Gross margins tumbled half a percentage point in the latest quarter, while operating margins contracted by 2 percentage points. That’s a lot, especially in the razor-thin world of retail.

Management warned it might face further markdowns, given the industry’s intense promotional backdrop. “Kors on Sale” is not what Wall Street wants to hear.

The uncertainty over margins and concern over the brand means KORS stock is likely to tread water until we get current-quarter earnings. If management warns about margins again in November, look out below.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.