Tiffany & Co. (TIF), Coach, Inc. (COH): 2 Luxury Stocks Set to Outperform

Besides that, its 231 store locations in North America generated 86.5% of its total revenue, while European nations accounted for 11.7% of total revenue. However, Japan contributed just 1.1% to its overall top line, and the minimal exposure to the country reduces risks posed by Yen depreciation.

The company operates with little or no debt, sports a healthy current ratio of 4.81 times, and enjoys an ROE of 52.35%, which altogether point toward a solid balance sheet. Analysts at Canaccord Genuity have a price target of $86 per share for Michael Kors Holdings Ltd (NYSE:KORS).

A company to miss?

Not all luxury stocks offer staggering returns. Although Coach, Inc. (NYSE:COH) has yielded hefty returns in the past, its shares have remained flat over the last year. The company generates around 20% of its overall revenue from Japan, which has dampened its overall growth. This is after Coach closed down 20 of its stores in Japan last year.

For the recent quarter, the company posted a 5.8% increase in profits, while its revenue beat the Street’s estimates by 0.8%. On a constant currency basis, its quarterly international sales rose by an impressive 14%. However, Forex fluctuations and a depreciating Yen resulted in a net sales growth of 6% (an erosion of 800 bps). Hence, analysts at UBS have a neutral rating for Coach, Inc. (NYSE:COH), with a price target of $59 per share.

Final words

Among the mentioned companies, only Coach, Inc. (NYSE:COH) appears to be undervalued. But, this is because its shares have largely remained flat over the last year. Although Coach is rapidly growing in China and has solid growth prospects, the bottom line remains that Forex losses are eroding gains.

With that said, I think investors should consider Michael Kors and Tiffany & Co. (NYSE:TIF) due to their minimal exposure in Japan. Their shares may appear to be fairly valued, but that’s because both companies have stellar growth momentum. Despite their fair valuations, analysts believe that Tiffany and (NYSE:TIF) Michael Kors offer significant upside due to their aggressive expansion plans and impressive same-store sales growth.

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach.

The article 2 Luxury Stocks Set to Outperform originally appeared on Fool.com.

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