Watches and jewelry are particularly promising for the company. Management believes it will be able to open approximately 500 shop-in-shops globally for watches and jewelry versus a current base of 60 shop-in-shops for those products.
Kors has ambitious plans for growth and, judging by the spectacular sales performance and abundant room for expansion, there is no reason to believe the company should slow down anytime soon.
On the other hand, shares of Michael Kors are trading at P/E ratio of more than 33 times earnings for the last year. That´s a considerable premium versus industry peers like Coach, Inc. (NYSE:COH), Polo Ralph Lauren Corp (NYSE:RL) and Vera Bradley, Inc. (NASDAQ:VRA) which trade at P/E ratios of 15, 21 and 12 respectively.
The company deserves a premium due to its superior growth prospects and financial performance, but investors need to be aware of the fact that Michael Kors is priced for growth, and any slowdown could create material volatility in the stock.
Michael Kors is a high-quality company with a strong track record of growth and a profitable business model. The company is outperforming its peers by a wide margin in a challenging scenario, and it still has plenty of room for growth in the middle term. Even if the stock is a bit pricey, Kors is positioned to outperform.
The article Big Growth Potential Ahead for This Fashion Company originally appeared on Fool.com and is written by Andrés Cardenal.
Andrés Cardenal owns shares of Michael Kors and Coach. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach.
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