After last week’s star-studded tech earnings lineup, this week’s laundry list of earnings reports offers a bit more variety. One fashionable name to keep a close eye on? Michael Kors Holdings Ltd (KORS).
If you remember, KORS stock hit the public markets late in 2011 … and the high-flying, high-fashion pick could seemingly do no wrong. Until 2014, that is. So far this year, share of Michael Kors stock have struggled to get any kind of momentum.
Will the upcoming Michael Kors earnings report, which is slated for Tuesday morning, help the stock start climbing high once again? Let’s take a closer look at what to expect.
Michael Kors Earnings Preview
First things first, let’s break down the numbers. Any post-earnings reaction is shaped by expectations, and KORS stock won’t be any different.
Michael Kors earnings are expected to come in at 89 cents per share — a solid 25% improvement from last year’s 71 cents. That profit expansion will come on the back of solid revenue growth as well, with the top line expected at $977.5 million vs. $740.3 million a year ago.
But remember, Michael Kors is a growth stock by nature. Over the past five years, earnings growth has averaged a mind-boggling 82% per year — making that 25% figure seem slightly less impressive. For further proof of the high growth bar KORS has set for itself, just consider same-store sales. They’re expected to rise 18% — again, a solid number in a bubble, but not as impressive when you consider it will be the company’s smallest gain in five years.
The point: Michael Kors stock is undergoing a valuation transition — the same as other hot picks, such as Chipotle (CMG). The question is whether this year’s weakness represents the end of that transition.
If you look at valuation, KORS stock seems like a smart pick. The stock sports a forward price-to-earnings ratio of 16 — not bad when compared with 25% earnings growth, and right around the same as established rival Coach (COH) and cheaper than Tiffany & Co (TIF).
Plus, Morgan Stanley said at the beginning of October that the stock’s weakness presented a buying opportunity — a thesis that should still hold true considering the stock has more or less moved sideways since then. And the analyst consensus is still for $104, which represents a whopping 32% upside from current prices.
A handful of analysts don’t seem particularly optimistic of late. Janney Capital Markets, for one, downgraded KORS stock last week “on concern Kors’ growing European business won’t be enough to offset slowing demand in North America, about four-fifths of its total sales,” as MarketWatch put it.
Meanwhile, InvestorPlace expert Dan Burrows said back in September that the fear of overexpansion would weigh on Michael Kors for months to come.
If the Michael Kors earnings report shows the slightest hint that those fears have a strong foundation, even a cheap price tag might not be enough to get the stock moving higher again.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
