Is Michael Kors a Fashionable Investment?

With shares of Michael Kors Holdings Limited (NYSE:KORS) trading at around $62.00, is KORS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

If you haven’t yet heard of Michael Kors, then you will soon. If you’re not sure what this company is all about, then it’s recommended that you check out their website. You will immediately see that Michael Kors is about luxury with a cool attitude. It’s also a company that’s putting fear into its competitors. The biggest competitor is Coach (NYSE:COH). At the moment, Michael Kors has all the momentum, and that might continue for quite some time, but in the long run, it will even out. It almost always does when two heavyweights go toe-to-toe.

As far as earnings go, Michael Kors keeps on winning. Q3 EPS came in at $0.64 versus an average expectation of $0.41. Q3 revenue increased 70 percent to $636.8 million. The average expectation? — $540.3 million. That’s the epitome of blowout earnings. Net sales increased 41 percent year over year, which had a lot to do with strong demand during the holiday season. Same-store sales increased 44 percent. Retail sales increased 67 percent to $332.6 million. Wholesale sales increased 77.4 percent to $274.3 million.

If that’s not enough good news for you, then consider taking a gander at guidance. FY2013 EPS is expected to come in between $1.80 and $1.82. The original expectation was between $1.48 and $1.50. FY2013 revenue is expected to come in at $2.1 billion. The original expectation was between $1.86 billion and $1.96 billion.

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Strong    

The debt-to-equity ratio for Michael Kors is strong, and the balance sheet is in excellent condition.

Debt-To-Equity

Cash

Long-Term Debt

KORS

0.01

$312.24 Million

$11.62 Million

COH

0.01

$858.66 Million

$22.71 Million

TIF

0.40

$345.87 Million

$977.92 Million

 

T = Technicals on the Stock Chart Are Strong

Michael Kors has outperformed Coach and Tiffany & Co. (NYSE:TIF) by wide margins over the past year. The only downside is that Michael Kors doesn’t offer yield. Coach yields 2.50 percent, and Tiffany yields 2 percent.

1 Month

Year-To-Date

1 Year

3 Year

KORS

17.19%

21.58%

85.36%

N/A

COH

-16.78%

-11.78%

-33.06%

44.42%

TIF

5.51%

10.92%

1.63%

62.20%

 

At $62.00, Michael Kors is trading above all its averages.

50-Day SMA

53.42

100-Day SMA

53.33

200-Day SMA

48.63

 

E = Earnings Have Been Steady             

Earnings have been steady on an annual basis. Revenue has been very impressive  

N/A

2009

2010

2011

2012

Revenue ($)in millions

N/A

397.07

508.10

803.34

1.30B

Diluted EPS ($)

N/A

0.07

0.22

0.40

0.78

 

We already know what happened this quarter. Now let’s take a look at previous quarters as well.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in millions

305.53

373.61

379.99

414.86

532.94

Diluted EPS ($)

0.22

0.20

0.22

0.34

0.49

 

Let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Michael Kors is bucking the trend. While the consumer is weak, Michael Kors continues to show strength. Perhaps the most amazing fact is that this company is doing well in Europe. That’s very uncommon in today’s economic climate. As long as Michael Kors products remain fresh, exciting, and unique, the industry trend won’t matter. (It helps that luxury goods tend to be a bit more recession proof.) This should last for a considerable amount of time prior to fading.

Conclusion

Michael Kors is one of the hottest stocks on the street right now. That’s always a good sign. The balance sheet is strong, margins are good, cash flow is excellent, and the brand is super hot. Some investors are concerned about a forward P/E of 29.39, but this company’s earnings strength and momentum is likely to continue.

Michael Kors is an OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.