Ever since I read Tom and David Gardner's book Million Dollar Portfolio, I've been interested in Coach (NYSE: COH ) . Since the concept of the book stemmed from Tom's meeting with CEO Lew Frankfort, it's a company I've kept an eye on for a while now. With the recent earnings release and subsequent sell-off, I am taking advantage and adding shares to my portfolio.
Keep it simple
In line with my investing philosophy, there are four things I look for when considering any investment:
- I want management I can trust. They need to be in it to win it, and they need to be honest.
- I want something that is understandable and that I can enjoy following.
- I want a catalyst -- a short-term event or long-term trend that will help create value.
- I want a fair price. Enough said.
Management I can trust, in it to win it
Frankfort has served as chairman and CEO of Coach since 1995 and has been involved with the company for more than 20 years. His track record speaks volumes, and his dedication to the customer is simply phenomenal:
You've got to be more obsessed with researching customers than with generating ideas. To be great for generations, your intuition alone about what customers want today will not suffice. Talk to them every day. Listen to them. Make an eternal effort of gathering and analyzing as much information about them as you can.
Understandable and interested
Coach is retail. Period. The company sells higher-end accessories and apparel for women and men.
A long-term trend
OK, maybe I was a bit blase on what Coach does. It is certainly seen as higher-end retail. And there's no question that higher-end retail is facing some headwinds. Companies like Tiffany (NYSE: TIF ) and even Saks (NYSE: SKS ) are seeing lower share prices as consumer spending tightens at home.
One thing to keep in mind, though, is that Coach is an international story. Outstanding performance in Asia and entry into new markets such as Brazil, Kuwait, and even Vietnam give Coach plenty of room to grow even if spending cools off here in the U.S. I also expect to see great things as the company rolls out its new Legacy collection over the coming quarters.
All at a fair price
While Coach's products may be seen as expensive to some, its share price today is anything but when you consider the long-term earnings potential of the company. The recent sell-off has brought shares back down to 15 times current earnings and only 12.5 times fiscal 2013 estimates after downward revisions.
I'm not going to make the argument that Coach is "dirt cheap." I'm sick of the expression and the share price can always (and probably will) go lower. But it is a fair price in my estimation for a superior business that has consistently demanded a higher multiple. You can join me over on my discussion board where I'll dive deeper into the financials and valuation.
Put me in, Coach
Most of the time when management says that the coming year is going to be an "investment year" for the business, the sellers can't get to the exits fast enough. And that's where I come in. The hit Coach is taking today seems overdone when looking at it from a long-term perspective, so it's time to be opportunistic and grab a piece of a company I respect. Make sure to follow me on Twitter to keep up with all of my Motley recommendations.
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