We came across a bullish thesis on Tapestry, Inc. (NYSE:TPR) on ValueInvestorsClub by baileyb906. In this article, we will summarize the bulls’ thesis on TPR. The company’s shares were trading at $65.30 when this thesis was published, vs. the closing price of $85.42 on Feb 28.
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TPR provides luxury accessories and branded lifestyle products in North America, Greater China, the rest of Asia, and internationally. 48% of its sales comes from handbags with North America accounting for 65% of its business.
Coach, the bag and leather accessory segment has been gaining popularity over the years and is at a decade-high level. It is a favorite among Gen Z customers with footfalls significantly higher during periods like Black Friday. The number of Google searches and the frenzy on TikTok suggest a decent growth rate for this segment for the coming quarters. The management guidance for Coach reflects a 3% growth but 5% would be a more reasonable estimate. This growth can potentially drive the FY2025 EPS to $5, higher than the street estimate of $4.64.
TPR can also improve its EPS estimates from the recent cancellation of a deal to acquire Capri Holdings. This would enable the firm to borrow more and purchase more stock which could boost sales further. A better leveraged structure combined with a higher revenue should drive the 2025 EPS above $5 and the 2026 EPS above $6.
TPR has been trading in the 10-20x range of its EPS, with 16x being a base case scenario. While the consensus estimates project a single-digit growth in EPS, 15-20% growth is achievable if Coach can grow at 5% and TPR repurchases some of its shares. The share price is trading close to 16x its 2025 estimates but there is still more headroom for growth considering a $6 EPS projection for 2026. Taking the 2026 EPS as a measure of the stock value, TPR offers a 13% return from its current price. A rerating to a higher multiple is possible once TPR manages to beat estimates and the street believes that its EPS can grow at mid to high teens.
While we acknowledge the potential of TPR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TPR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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