Will Investors Push Coach Stock Higher?

Coach (NYSE: COH  ) stock has made a solid comeback since the start of 2013. Momentum from April's retail sales seemed to carry over into May, pushing shares of Coach up as much as 15% in the past month. Let's take a closer look at what's driving the stock's rebound and whether Coach can continue its winning streak.

From here to there
The recent run-up in Coach's stock price brought welcome relief to longtime Coach shareholders who had endured a bumpy ride at the start of the year. Increased competition from retail rival Michael Kors (NYSE: KORS  ) sent Coach stock lower in January. However, the leather-goods company isn't going down without a fight.

Better-than-expected sales growth in North America and strong sales in China were some of the highlights from Coach's quarterly earnings report last month. Investors were also inspired by the company's recent decision to raise its dividend. Coach boosted its dividend payout by more than 12% and will now pay a quarterly dividend of $0.33 per share.

At first glance, Coach stock looks cheap, particularly if you consider it trades at just 14 times forward earnings. For comparison, shares of Michael Kors stock trade at 24 times next year's earnings. Still, Coach stock has significantly underperformed shares of Kors in the past year.

COH Chart

COH data by YCharts

That's mainly because Kors continues to steal market share from Coach in the luxury retail and accessories space. In an apparent bid to regain customers lost to the competition, Coach is rebranding itself as a lifestyle company. Yet even if the company's new retail strategy is a success with consumers, it could take years to make a material difference for shareholders.

How to play it?
With Coach stock currently trading near $60 a share, I think the stock will have a hard time moving higher from here. Moreover, I think investors should wait to see how the company's new retail strategy and upcoming creative hires pan out before jumping into this name.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only the most forward-looking and capable companies will survive, and they'll handsomely reward investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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