Fashion is a dynamic and competitive business, but it can also be enormously profitable for well-run companies delivering the right merchandise to their clients. Which company is a better choice for your portfolio: Michael Kors (NYSE:CPRI), Coach (NYSE:TPR), or Kate Spade (NYSE:KATE)?

Michael Kors is as hot as it gets
Michael Kors is arguably the most explosive growth name in high-end handbags, shoes, and accessories over the past several years. The company has delivered an impressive growth rate of 47.5% per year in sales through the last five years, and there is no slowdown in sight according to recent financial reports.

Source: Michael Kors.

On the contrary, sales growth accelerated to a whopping 59% during the fourth quarter of 2013, and performance was booming across the board. Retail sales increased by 51.3% on the back of 98 new stores during the quarter and a 27.8% increase in comparable-store sales; wholesale revenues grew 68.2% and licensing fees jumped by 59%.

Profit margins are remarkably high and rising: Gross profit margin came in at 61.2% of sales versus 60.2% in the previous year, and operating margin expanded to 33.9% of sales from 32.2%.

Management estimates that Michael Kors has room for more than 700 global stores versus the 395 retail stores it currently has, and demand strength is indicating that growth opportunities in the years ahead are quite promising as new store openings are not hurting sales at existing locations at all.

These kinds of exceptional growth opportunities rarely come at a cheap price, though. Michael Kors trades at a P/E ratio in the area of 30.5 times earnings over the last year; this not excessive for a company delivering such an outstanding performance, but Michael Kors will need to continue outgrowing the competition in order to justify its elevated price tag.

Coach for bargain shoppers
Coach expanded excessively in the U.S. over the last several years, and the company had to resort to promotions and discounts to compete on price, which had a negative impact on brand value and image differentiation for the company's products.

Source: Coach.

Besides, competing against Michael Kors is no easy task at all, and Coach has been feeling the pressure lately. During the quarter ended on Dec. 28, the company delivered a worrisome decline of 9% in total sales in North America and an even bigger drop of 13.6% in comparable-store sales in the region.

On a brighter note, Coach is doing much better in China, with total sales growing by 25% and comparable-store sales rising at "a double-digit rate" in the country during the last quarter.

Coach's new collection from incoming creative director Stuart Vevers will be reaching the market in September, and this will be an important development to watch as it should provide more visibility regarding the company's ability to position itself on the right side of consumer demand under the new creative leadership.

In the meantime, Coach is offering an attractive entry point for investors: The stock is trading at a P/E ratio of 14.3, less than half the valuation assigned by the market to Michael Kors. In addition, the dividend yield of 2.8% provides income while investors wait for Coach to turn the business around and accelerate growth.

Kate Spade is focused on growth
Kate Spade is going through a transformation in order to better focus on growth opportunities. The company recently sold its
Juicy Couture and Lucky Brand brands, and it even changed its name in February from Fifth & Pacific to Kate Spade to align the company's name with the only remaining brand in the portfolio.

Source: Kate Spade.

It's easy to see why the company is moving in this direction; net sales of Kate Spade products increased by a whopping 48% in the fourth quarter of 2013 to $256 million during the period. Kate Spade segment-adjusted EBITDA during the quarter came in at $64 million, or 25.1% of sales, versus $43 million, also 25.1% of sales, in the same period of the prior year.

On the other hand, Kate Spade is a relatively young concept; the brand ended 2013 with 118 specialty retail stores, 51 outlet stores, and 43 concessions. Many of them were opened in the previous year. Kate Spade had net openings of 37 specialty retail stores, 11 outlet stores, and 11 concessions through 2013.

Considering Kate Spade has not yet proven its ability to sustain rapid growth over time, the current valuation looks quite risky at a P/E ratio of 56 times earnings, so the stock is materially vulnerable to any disappointment that may occur down the road.

Bottom line
Coach's attractive valuation makes it an interesting play for investors willing to bet on a turnaround, especially if the company's new collection reaccelerates growth in the coming quarters. With a smaller size, Kate Spade offers intriguing potential for growth, but valuation is a considerable risk for investors.

Michael Kors is not precisely cheap, but the company is truly firing on all cylinders, and superior performance merits a premium valuation. All in all, Michael Kors looks like the best play of these retailers when considering both valuation and performance.