Tiffany & Co. (TIF), Coach, Inc. (COH), Saks Inc (SKS): Luxury, an Investor’s Best Friend?

With the Dow Jones Industrial Average fighting back above the 14,000 mark and individual investors piling their money back into the stock market could we be heading back to the business boom days? If we are back to the boom days, or even if we’re heading there, you can expect a lot more money to be spent on the luxury goods of Tiffany & Co. (NYSE:TIF), Coach, Inc. (NYSE:COH) and in the stores of Saks Inc (NYSE:SKS).

A Girl’s Best Friend

In the 1949 Broadway production of Gentlemen Prefer Blondes Carol Channing sang a song titled “Diamonds Are a Girl’s Best Friend.” Marilyn Monroe made the song eternally famous with her own rendition, and now girls everywhere crave the diamond. When it comes to diamonds and a long history of great branding, Tiffany’s is a true winner.

Think about the things that you associate with Tiffany’s for a moment. I know that the Tiffany Blue color that graces their bags popped up in some people’s minds; how about Audrey Hepburn’s Breakfast at Tiffany’s? That long history of branding, and the expert finishing on all of their products, are what allows Tiffany’s to stand out and sell their goods at much higher prices.

All of those expensive diamonds add up for investors who have seen five year EPS growth rates at Tiffany’s of 11.4%, with the three year EPS growth rate at an incredible 21.81%. Those aren’t numbers to cry about, but the pricing metrics might be. The P/E ratio is 19.7, higher than the S&P 500 but lower than the industry average of 26.9. Tiffany’s is also trading at 3.3x tangible book; that’s a pretty hefty markup.

The five year average ROI of 13.2% and the 2% dividend yield at Tiffany’s definitely bring the smile back to my face though. That dividend has a five year growth rate of 19.2%, a figure that would be hard to sustain for any company.

How About Those Purses?

I have never been into a Coach store but I have walked past quite a few, and they always seem to be overflowing with people. Are they spending their money on purses or just browsing? Well, looking at growth numbers, you’d be hard pressed to think they weren’t buying like crazy.

Both revenue growth and EPS growth are in the double digits over the one, three and five year ranges. Sustaining that type of growth over five years is quite a difficult thing to do, especially when you’re selling a luxury product in down-times. The three year revenue growth rate sits at 11.74% while the three year EPS growth is an incredible 18.36%.