What Does Billionaire Andreas Halvorsen See In Michael Kors Holdings Ltd (KORS)?

Upscale accessories designer Coach, Inc. (NYSE:COH) and fast-growing athletic apparel company Lululemon Athletica inc. (NASDAQ:LULU) are two of Michael Kors Holdings Ltd (NYSE:KORS)’s peers. Even Lululemon Athletica inc. (NASDAQ:LULU) can’t rival Kors’s rapid growth, but the company still experienced a 31% increase in revenue in its most recent quarter compared to the same period in the previous fiscal year with earnings rising 49%. Yet the stock still trades at a premium to Michael Kors Holdings Ltd (NYSE:KORS) with a trailing P/E of 44, so the market is expecting lululemon to outperform going forward. Coach, Inc. (NYSE:COH)’s recent financial performance has been more modest, with single-digit growth rates on both top and bottom lines. With trailing and forward earnings multiples of 16 and 14, however, markets are less optimistic here and so the company might still be worth a look.

We can also compare Michael Kors to Tiffany & Co. (NYSE:TIF) and to Sothebys (NYSE:BID), with all three focusing on higher-end products and therefore tied to similar economic trends. Sotheby’s beta is 3.0, while Tiffany & Co. (NYSE:TIF)’s is 1.9. Each of the two carries a trailing P/E of more than 20; while Sotheby’s is expected to increase its earnings per share significantly in the next year and a half, the forward P/E is still 17 and those analyst projections would reverse the recent decline in revenue the auction services company has been experiencing. As for Tiffany, the $10 billion market cap jeweler had its net income rise only 3% in its fiscal Q1 from its levels a year ago, and so we’re skeptical that the company will grow enough to justify the current valuation.

Michael Kors trades quite expensively, but we’re impressed by its recent financial results. Certainly it’s odd that the company has been growing faster than lululemon but is valued at lower earnings multiples, and as such might be a better growth stock. It also looks like a good alternative to Tiffany or Sotheby’s, which have struggled somewhat in recent quarters yet have high growth priced in at current levels.

Disclosure: I own no shares of any stocks mentioned in this article.