What really blew the stock out of the water wasn’t even the tremendous revenue and profit growth, but the future prospects. Management told investors and analysts they were expecting mid-30% comparable-store growth on an annual basis for 2013. The bottom line for fiscal 2013 could be as high as $1.82 per share, up from initial estimates in the $1.50 range.
Unsurprisingly, things are looking great for Michael Kors. But what does this mean for prospective investors?
Regardless of the fact that this is a well-run company with amazing profit and market share potential, Michael Kors is, by no fault of its own, incredibly overpriced. Though growth investors will sure yell at me below, I just don’t see the company being able to maintain its incredible growth rates for years on end. I am not commenting on whether the stock will rise or fall, as I believe the market is irrational enough to keep the valuation flying high. But for the long-term investor, this is simply too expensive a company on a forward earnings basis.
Investors may want to look back at Coach, believe it or not. At 14 times forward earnings and likely falling, Coach could become a bargain if management is able to turn the direction of the company around. It certainly has the potential.
Either way, never invest outside of your own circle of competence. Buying what you know is a great mantra and looks good in lists, but there’s always a little more to the story.
The article The Only Thing That Outperforms Kors Is Its Valuation originally appeared on Fool.com and is written by Michael B. Lewis.
Fool contributor Michael B. Lewis has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach.
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