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Is Tiffany's Steep Decline Your Opportunity to Buy?

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As the market has shown weakness to begin 2014, Tiffany (NYSE: TIF  ) has performed even worse with a fall of more than 10% year-to-date. The decline in the stock came after a positive release by the company, which left investors scratching their heads. Let's take a look at Tiffany's release and the decline that ensued, and find out if this is our opportunity to buy or if we should steer clear of the stock and wait for a lower entry point.

Defining excellence since 1837
Tiffany is a manufacturer, marketer, and retailer of luxury goods worldwide. Its product mix includes jewelry, which accounts for about 90% of its sales, along with watches, fine China, crystal, fragrances, and accessories. All of the products it sells come in its world famous Tiffany Blue boxes, wrapped in a white bow, which has been an international sign of excellence since the company was founded in 1837.

Strong sales, weak stock?
The decline in Tiffany's stock began after the company reported better-than-expected sales for the holiday shopping season. The report was released on Jan. 10 before the market opened, and contained the following statistics:

  • Worldwide net sales increased 4% to $1.03 billion
  • On a constant-exchange-rate basis, net sales increased 8%
  • Worldwide comparable-store sales grew 6%
  • Sales in the Americas region grew 6% to $550 million
  • Sales in the Asian Pacific region rose 5% to $196 million
  • Sales in the Europe region increased 11% to $131 million
  • Sales in all other regions grew 22% to $21 million
There is nothing about these statistics that should have caused the stock to fall, especially when Tiffany proceeded to affirm its full-year outlook for fiscal 2013; it expects earnings per share to be in the range of $3.65-$3.75 versus $3.25 in fiscal 2012. Nevertheless, Tiffany's shares fell 1.79% on the day of the release and currently sit over 10% below their pre-release level.

Is it cheap or inexpensive?
After the steep decline, Tiffany sits a little more than 11% below its 52-week high of $93.64 which was reached on Jan. 2. At this level, Tiffany trades at 22.9 times trailing-twelve-month earnings of $3.62 and just 19.5 times fiscal 2014's full-year earnings estimate of $4.27. I believe a company like Tiffany could easily command a fair multiple of 25, which would put its shares around $90 today and well above $105 by the conclusion of fiscal 2014; these would represent significant short- and long-term gains. For this reason, I think investors should strongly consider initiating a position in Tiffany on any continued weakness and adding to it if the stock falls further.

The company attracting investors
No doubt, Tiffany is a loved company and it is inexpensive at current levels, but another company has stolen the luxury-goods spotlight. This company is Michael Kors (NYSE: KORS  ) , who took the market by storm in December of 2011. Michael Kors has risen an incredible 300% from its IPO price of $20. The rise could continue much higher if Michael Kors can exceed analyst expectations in its report due out on Feb. 6; here are the current expectations:

Metric Expected Year-Ago
Earnings per share $0.86 $0.64
Revenue $860.95 million $636.79 million

These estimates call for earnings per share to increase 34.4% and revenue to rise 35.2% year-over-year. I believe the estimates are attainable because of the strength in the Michael Kors brand and momentum from the second quarter. If Tiffany continues to decline and you do not want to be caught in the falling-knife situation, look to Michael Kors, as I believe it could rally well above $95 per share by the conclusion of 2014; this would represent a gain of over 18%.

Coach's struggles continue
Coach (NYSE: COH  ) , a less notable competitor of Tiffany, has been a non-stop disappointment for the last several quarters. Its products are no longer in demand like they once were and this has made others within the industry, like Tiffany and Michael Kors, look even better. Coach reported earnings on Jan. 22 and missed estimates badly, which caused the stock to fall hard. Here's an overview of the results:

Metric Reported Expected
Earnings per share $1.06 $1.11
Revenue $1.42 billion $1.48 billion

Coach's earnings per share decreased 13.8% and revenue fell 5.3% year-over-year, as a result of weaker-than-expected sales in handbags and accessories and slower customer traffic in its stores. This was a horrible quarter all around for Coach, which caused the stock to open the trading session down more than 7%. I believe the sell-off was more than warranted and the stock will likely see continued weakness over the next several weeks. Do not waste your time or money investing in Coach when you could go with much better options, like Tiffany or Michael Kors.

The Foolish bottom line
Tiffany is a worldwide powerhouse who defines luxury and excellence in the jewelry industry. Its stock has been hit hard following what I believe was a strong holiday season sales report, and this appears to be nothing more than a buying opportunity. Keep a close eye on this one and consider buying on any continued weakness provided by the market.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 13, 2014, at 1:29 AM, Johnsoftie10 wrote:

    Only an idiot would want to own TIF at these prices. Motley Foolish No wonder they sell bullish reports like this. These idiots are the primary cause of folks loosing money. Look at BBY what a wonderful analysis where they did worse than the previous year and jumped the stock 250%. They have no sense of valuation when the rest of the world is contracting.

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Joseph Solitro

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