Offering slower growth prospects and several competitive challenges, including new industry entrants and fashion-related risks, Coach, Inc. (NYSE:COH) looks like a hold case for now — especially if compared to Kors — and its valuation, pretty fair. (Nevertheless, for those looking for stable companies with sustainable growth ahead of them, which also return value to investors, Coach could be a pick, yielding about 2.30% in the form of dividends).
Tiffany: Price for luxury
Tiffany & Co. (NYSE:TIF) is probably the most well-known jewelry retailer in the world. For decades, its brand name has been a synonym for luxury and an indicator of socio-economic status. This has provided the firm with a fair moat and plenty of client loyalty. However, the company´s stock doesn´t look like a buy at the moment; trading at 23.9 times its earnings, a 37% premium to the industry mean, while offering below average expected EPS growth rates of about 12% per year, the shares look quite overvalued.
The main concerns about Tiffany & Co. (NYSE:TIF)´s future growth comprise the effect of macroeconomic headwinds and a sluggish recovery in the U.S. and Europe; its sensibility to input costs, especially those of diamonds and precious metals, its high exposure to fluctuations in foreign currencies due to its strong international presence, its contracting gross margin, and its high dependence on its New York and, to a lesser degree, Japanese businesses.
Nevertheless, some strong points in its business and operational model make this company worth keeping an eye on. For starters, its massive diamond purchases allow the firm to leverage over suppliers and supply chains, thus widening margins — its operating margin of 18.2% is over double the industry average. Moreover, several capital investments in distribution, manufacturing, and diamond sourcing processes should start paying out soon, contributing to further widen the firm´s margins.
In addition, revenue and net income have been consistently growing at a very fast pace over the past couple of years, doubling and tripling industry means.
Bottom line
Both Tiffany & Co. (NYSE:TIF) Coach seem poised to deliver sustainable EPS growth rates over the next half decade, yield generous dividends regularly and trade below average valuations. However, Kors is my stock of choice, even in spite of its much higher valuation. Offering compelling growth prospects for the long-term, moated and poised to outperform its peers, this is a value stock at the moment.
Damian Illia has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach. Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article These Luxury Brand Names Still Look Promising originally appeared on Fool.com is written by Damian Illia.
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