Coach: Why Big Returns Could Be In The Bag

China's population of $1.3 billion and counting remains a vast frontier of untapped potential for many companies around the world. This is nothing new, but what should grab your attention is how a company like Coach (NYSE: COH  ) is driving further into the People's Republic with incredible success, almost humorously divergent from their recent progress in the good old USA. With Wall Street abuzz over the company's terrible North America performance over the past several quarters and seemingly stifling competition from Michael Kors (NYSE: KORS  ) , investors should take note of the iconic Coach brand for potentially out-sized returns.

A world of opportunity
According to Coach CEO Victor Luis, China is on track to meet annual guidance of $530 million in sales through their fiscal year end in June. While we don't have a sales forecast of the other units to more appropriately compare the business' China segment to other geographies, we can can get a rough estimation of the role China currently plays in Coach's operations and the massive potential the lies ahead by comparing to last year's results, especially since NA is experiencing a sales decline and the non-China international operations seem largely flat.

Source: Capital IQ

As you can see Coach's international operations made up about one third of the company's total sales. Within that one third, China only accounts for about one third of international sales, or roughly slightly better than one tenth of overall sales. And with these sales expanding at a 25% clip in its most recent quarter, it's clear the company is only in the early innings of its China expansion.

With a burgeoning population whose discretionary spending power is also on the rise, China will likely continue to serve as a powerful growth catalyst to Coach's cash flow for many years to come.This could be an opportunity for long-minded investors seeking to take advantage of the company's current woes at a what appears to be an opportunistic share price.

COH Price to Free Cash Flow (TTM) Chart

COH Price to Free Cash Flow (TTM) data by YCharts

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