Is This Red Carpet Stock Worthy of an Oscar?

Each year, I throw an Oscar party for my fashion-obsessed wife. I've thus come to know some of the better brands in the business, none of which interests me so much as Michael Kors (NYSE: KORS  ) .

Kors, whose premium designs stretch from clothes to accessories found on the shelves at Apple's retail stores, took his company public in December 2011. The stock has soared more than 145% since, and that's after accounting for a brief sell-off connected to a shelf registration that allowed a number of insiders, including Kors, to sell millions of dollars in stock on the open market last week.

I'm not so sure that's a good reason to avoid the stock. Why? Insiders liquidate all the time. Facebook (NASDAQ: FB  ) shares sold off in the months leading up to last November, when employees and early investors were free to sell 800 million shares. The stock rallied as fears went unrealized.

Could the same happen here? Why not? Kors' wares have rarely been more popular than they are now. According to Digital Luxury Group, Kors is the most-searched-for fashion label online, beating Marc Jacobs and Ralph Lauren (NYSE: RL  ) .

The company also stands out financially when compared with its peers:

Metric

Michael Kors

Ralph Lauren

Revenue*

$1,964.6

$6,924.4

Employees

4,180

25,000

Revenue Per Employee

$470,000

$276,976

Return on Assets

38.9%

12.8%

Days Inventory Outstanding

103.2

121.2

Source: S&P Capital IQ.
*In millions. 

No doubt Ralph Lauren has a great business. Yet right now, Kors is not only more popular but also performing at a higher level. You'd think that would merit a premium valuation. Instead, the stock trades for 24 times forward earnings, versus 18 for Ralph Lauren. Analysts see Michael Kors growing profits more than twice as fast as Ralph Lauren over the next five years.

My point? There's substance to the style at Michael Kors. Those ignoring this truth may regret selling a year from now. But that's also just my take, and you may have a different view. Please share your thoughts in the comments box below.

And remember: You don't need a ticket to the Red Carpet to to follow Michael Kors. Our new premium research report tells you everything you need to determine whether the stock is fit for your portfolio. To claim your copy, simply click here for instant access.


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