Why Michael Kors Holdings Ltd. Could Rebound 40%

Does this analyst make a good case? Or is it just more noise from Wall Street?

Jul 21, 2014 at 12:53PM

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Michael Kors Holdings (NYSE:KORS) rallied 2% today after Topeka Capital reiterated its buy rating on the luxury retailer.

So what: Along with the bullish note, analyst Dorothy Lakner reiterated her price target of $117, representing about 44% worth of upside to Friday's close. So while momentum traders might be turned off by Kors' sharp pullback in recent weeks, Lakner's call could reflect a sense on Wall Street that the concerns surrounding its growth trajectory are largely overblown.

Now what: According to Topeka, Michael Kors' risk/reward trade-off is particularly attractive at this point. "The recent downdraft in KORS seems to us to have been based on a lot of panic and very little evidence, leading us to reiterate our Buy rating," said Lakner. "Our channel checks, both in stores and online, suggest that there has been scant markdown and clearance activity in the brand, contrary to some reports. We see a still hot brand at a more attractive price, especially given growth prospects far above the rest of the industry." When you couple that potential with Kors' still-cheapish PEG of 0.9, it's tough to disagree with Topeka's bullishness.

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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