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Ralph Lauren Corp (RL), Michael Kors Holdings Ltd (KORS), The Jones Group Inc. (JNY): High Growth Projections, But a Bit Unrealistic

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Ralph Lauren Corp (NYSE:RL) is one of the leading fashion brands, and has been for some time now. Even with its success, the company still manages to grow its revenues at a fairly rapid pace, with annual sales nearly tripling from $2.4 billion a decade ago to almost $6.9 billion last year. What I’m curious about is whether all of the potential growth and good news is already priced into the stock. With shares sitting right at their all-time highs, how much further could Ralph Lauren Corp (NYSE:RL) climb, if at all?

Ralph Lauren CorpRalph Lauren Corp (NYSE:RL)

Since it began selling men’s ties in 1967, Ralph Lauren Corp (NYSE:RL) has grown tremendously. The company now offers an extensive variety of men’s and women’s apparel, watches, jewelry, and accessories. The company sells its merchandise in department stores, its 379 retail shops, as well as on its website. Department stores continue to provide the bulk of the company’s sales, with its top three department store wholesale accounts bringing in 40% of total revenues.

The company’s brands include Ralph Lauren Corp (NYSE:RL) Blue Label, Black Label, and Purple Label, as well as Polo by Ralph Lauren, RLX, Rugby Club, Chaps, and several others. The company also sells a line of bedding and bath products, and other home furnishings.

The Numbers: Too High For Comfort?

As I mentioned, my main concern with Ralph Lauren is that all of its growth and potential may already be priced into the stock. When the company reports earnings on May 23, it is expected to report fiscal year 2013 earnings of $8.03 per share, producing a P/E ratio of about 23. This seems a little high, so let’s see if I’m missing something here.

With the continuing economic recovery, consumers are expected to have more and more money to spend on discretionary and luxury items, and in fact total apparel sales rose about 4% last year, a very good sign. However, the consensus calls for 14.3% forward annual earnings growth, and I’m not quite sure that is entirely realistic. The continuing trend toward higher raw materials and freight costs should make it difficult for the company to grow its profit margins at that level for any sustained period.

The Alternatives: Is There A Better Option Out There?

Since I think Ralph Lauren may be a bit too expensive, let’s take a quick look at competitors Michael Kors Holdings Ltd (NYSE:KORS) and The Jones Group Inc. (NYSE:JNY) to see if maybe we can find a better deal.

Michael Kors Holdings Ltd (NYSE:KORS) is a highly popular designer of women’s and men’s apparel and women’s accessories, particularly watches. The company’s shares have done very well lately, up over 50% in the past year alone. Kors trades at an even more expensive P/E of about 31.7 times earnings, with even more ambitious growth projections. Additionally, hedge funds seem to be reducing their stake in the company, generally a red flag.

The Jones Group Inc. (NYSE:JNY) is much smaller than either of the other companies and designs and sells women’s apparel and accessories under the Jones New York, Nine West, and Anne Klein brands, to name a few. Shares have rebounded over the past few months, but unlike the other two, Jones is still well below where it was trading a few years ago, due to a few years of subpar earnings results.

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