Ralph Lauren Corp (RL), Underestimated and Undervalued

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Robust Fundamentals

In 2012, Ralph Lauren reported EPS (earning per share) of $7.62. Since 2002, the company’s EPS grew by a staggering 307%. This growth has been exhibited in an environment that is largely considered the longest and worst financial crisis of recent times. The company’s current annual dividend payout is $1.60, which has grown from $0.80 in 2011. Consumer spending in the US has declined considerably in the last decade as unemployment has grown, leading to consumers preferring economy stores.

However, it must be noted that during this phase of the crisis Ralph Lauren outperformed its counterparts, as the company’s share price grew by 102% in the last five years. The net debt on the balance sheet is much lower relative to competitors, as most retailers resort to long-term loans to invest in growth. However, Ralph Lauren is fairly liquid with reported cash of $1.4 billion on its balance sheet. Historically, the company has maintained a healthy FCF to EBITDA ratio, which usually leads to a higher company valuation. According to Trefis Analysis, the FCF% to EBITDA will remain close to 55% on average till 2019. This indicates a high valuation for the company, which is excellent news for potential investors.

My Take

Before investing in any stock an investor must have a horizon in mind. Ralph Lauren surely presents a long-term investment opportunity. The company’s financial and strategic fundamentals look very strong and highly reliable. The company still has high growth potential from Asian and European markets. The efforts made to drive other business segments along with focus on the Chinese market almost guarantees strong growth in its stock value.

The article Ralph Lauren, Underestimated and Undervalued originally appeared on Fool.com and is written by Sujata Dutta.

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