Michael Kors Holdings Ltd: Get Cozy With KORS Stock

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Michael Kors Holdings Ltd (KORS) is still far from stylish with Wall Street bulls — and in fact, KORS’ go-go days as a growth stock may in fact be all but over.

Michael Kors Holdings Ltd: Get Cozy and Wear a Buy-Write in KORS

But for investors interested in generating some income in Michael Kors stock as it continues to trade near 52-week lows … well, there’s still a finely cut position you can wear.

Michael Kors Is on the Discount Rack

Much of 2015 has seen shares of Michael Kors stock on the proverbial discount rack, though calling shares of KORS a bargain was another matter altogether.

Back in late May, KORS plunged by roughly 25%. A severe cut to the company’s sales and profit forecast, margin pressure and possible investor concern that the Michael Kors brand was becoming less hot and hip to wear and show off contributed to the fallout.

Michael Kors’ next earnings update delivered a profit beat above its reduced guidance and temporarily swayed investors that the worst in KORS could be over as shares temporarily ripped higher.

Potentially more inspiring — short sellers were unable to fashion a leg lower in KORS stock after the initial enthusiasm following the earnings beat wore off.

After one brief technical stab at lower prices in KORS stock, a lengthy and somewhat irregular double bottom pattern has been stitched together in shares of Michael Kors. In our view, that’s supportive for the bull case.

Now, on the heels of last week’s Q2 report, there’s additional evidence of business firming at Michael Kors, and a bottom forming in KORS stock.

Sure, Michael Kors is not the growth stock it was back during 2012 into early 2014 — but it doesn’t need to be. With fundamentals that include a price-to-sales ratio of 1.75, forward price-to-earnings ratio of 9.35 and no debt to speak of, the MK brand is looking well-dressed.

KORS Stock Chart

Michael Kors chart
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Source: Charts by TradingView

Following last week’s post earnings upside reaction, shares are doing a bit of backing and filling into the widely watched 10-day simple moving average.

I’m not convinced the current test of this moving average is going to hold, but the downside risk in KORS appears likely limited to the existing pattern support.

If you don’t believe in the chart for finding a bottom, the company did buy back $400 million in KORS this past quarter at an average price of $42.44 as part of its larger share repurchase program.

Given the scope of the buyback and price chart, KORS stock is likely to find willing buyers, as well as the company stepping in closer to $40 to purchase shares should they fall.

Traders can use this support to their advantage right now.

How to Trade KORS Stock

Given what we have discussed, one combination that looks attractive with KORS trading around $41.65 is a Dec 4 $42.50 buy-write. The packaged spread sells the call for $1.05 and buys shares of KORS for $41.65 for a net debit of $40.60.

The stock cost basis is close to the $40 level, where we expect to find buyers and support for KORS should it move lower.

If KORS stock makes a move toward $40, the trader could capture the call premium at expiration or a part of it prior — then repeat the process and continue on his or her own program of income collection and possible upside stock appreciation.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2015/11/michael-kors-holdings-ltd-kors-stock-trade/.

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