Tiffany & Co. (TIF), Coach, Inc. (COH): What Lies Ahead for Tumi Holdings Inc (TUMI)

If Tumi comes in at the high end of its guidance, $0.86 per share in full-year 2013 earnings, that implies a P/E of 24.7 times — still a far cry from anything close to value-oriented. Of course, a stock doesn’t have to trade dirt cheap to be a winner for your portfolio.

Industry trends

In a recent interview with The Wall Street Transcript, investment advisor Warren Barnett said he believes the recently out-of-favor luxury goods industry is prime for consolidation. Companies like Tumi Holdings Inc (NYSE:TUMI), Tiffany & Co. (NYSE:TIF), and Coach, Inc. (NYSE:COH) have had a difficult time meeting expectations, even if, like Tumi, sales are growing in the double digits year over year. Barnett points out that these companies typically have a high return on capital and strong margins.

The biggies in the business, such as Moet Hennessy Louis Vuitton, are luxury conglomerates capable of swallowing whole a Tumi, Tiffany & Co. (NYSE:TIF), or Coach, Inc. (NYSE:COH). The future growth of all these players lies in the East, and MHLV has fantastic exposure in the region and could leverage this for any potential acquisition. More important for MHLV, these companies (with the exception of recent entrant Tumi Holdings Inc (NYSE:TUMI)) are all trading at discounts to their historical P/Es. Tiffany & Co. (NYSE:TIF) has a forward ratio of just over 19 times, yet if you look at its historical ratios, the company spent most of 2010 through mid-year 2012 trading at ratios in the  mid-20s. If the company can even modestly improve sales and achieve favor with the Street, we could see a return to a 25 times to 26 times multiple.

Foolish bottom line
Is there an acquisition on the table? It’s mere speculation until we hear anything concrete, but this year has started off as a big one for M&A, and the current market is encouraging even more deals to come.

For now, though, Tumi Holdings Inc (NYSE:TUMI) remains an expensive stock without the track record to justify higher expected multiples. Investors ought to wait and see subsequent earnings reports for any improvements on the horizon.

The article What Lies Ahead for Tumi originally appeared on Fool.com and is written by Michael Lewis.

Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.