Here’s an interesting price chart for Coach Inc (NYSE: COH):
Let’s run some numbers:
- Market cap: $9.5 billion
- Current PE Ratio 10
- PE ratio as a % of industry group (consumer non-durables): 64%
- Dividend yield 3.4%
- Gross profit margin 72%
- Pre tax profit margin 30%
- Return on assets: 31%
- Return on equity 47%
- Current ratio 2.9
A nice set of numbers yet the share price has been in decline since the first quarter of 2012.
Here are the last 5 years diluted EPS from 2009 to 2013: 1.91, 2.33, 2.92, 3.53 and 3.61.
So earnings growth has slowed over recent years which is the only explanation I can find for Coach’s share price decline driven by weak US consumer spending on non-durable goods as shown in the following chart (line 10) from The US Department Of Commerce
Chart courtesy of the Bureau of Economic Analysis
Is Coach A Value Trap?
It is at today’s share price even though it has little debt and a very strong balance sheet; current assets are made up of cash and marketable securities.
Those consumer spending numbers are extremely compelling yet Coach has managed to report positive earnings whilst strengthening it’s balance sheet, especially cash and cash equivalents.
Coach is undervalued but even with the positive attributes I’ve outlined today the share price is not low enough for an acceptable margin of safety.
I’ve added Coach to The Watchlist and I’ve set a price alert to email me when it reaches it.
A little more patience is required before I initiate a position.
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Images: Yahoo! Finance