Archive for April, 2006

The Pitfalls of Advertising on the Internet

Published on April 27, 2006 in Business, Internet and Marketing. 2 Comments

I recently had the chance to write a research paper for my Internet Marketing class on the effectiveness of online advertising tools and how the effectiveness of an online advertising campaign is measured. The interesting part is why measuring effectiveness of online advertising isn’t even close to being great. I do not wish for this blog post to be as long as my previous posts, therefore I will simply touch upon the major points of this issue:

  1. There is no perfect way to find out if any advertisement’s click-throughs are fraudulent or not.
  2. Even though there are great tools out there such as Google Analytics that will allow one to measure return on investment, bounce rates and points, as well as how different advertising tools are doing in comparison to others, there is no real method to measuring effectiveness fully as there is no way to measure the brand impact, whether the one website visitor will come back to the website in the future to make a purchase, or what it was about the advertising campaign that got the visitor to click on one of the advertisements in the first place.
  3. If someone views the advertisements of an advertising campaign there is no real way of telling what kind of impact the advertisement had on the viewer and whether the visitor will visit the advertiser’s website in the future simply by remembering information that was displayed in the advertisement such as the company name or the web address.
  4. According to research conducted by Alaxander Dreze (Internet Advertising: Is Anybody Watching?), 50% of a website’s visitors automatically avoid advertisements, therefore if one of the purposes of an online advertising campaign is to create brand impact or awareness, the advertisers have already lost out on 50% of potential viewers. But then again, 50% is much lower than the avoidance rates found for television advertisements and the Yellow Pages advertisements.

I am not trying to discredit internet advertising at all; on the other hand of this argument there are some great ways of measuring the effectiveness of online advertising, but as a whole, it is not perfect. With the ability for anyone to advertise online today within five minutes of deciding to do so, one must first take into consideration the above mentioned.

Time to Invest in Coach Inc.?

Published on April 22, 2006 in Business and Investing. 0 Comments

With Coach Inc.’s (COH) 3rd quarter earnings for 2006 to be announced in the morning hours of Tuesday, April 25, and with Coach’s fiscal year ending in the next quarter, is this the prime time to invest in Coach? Seven out of eleven analysts have Coach rated as a strong buy, with the other four analysts equally split between Coach being a regular buy and a hold.

If some of the bullish analysts are correct and Coach does hit the $57 mark, anyone is looking to make up to 62% on their investment. A quick look at some of the major ratios will show why Coach is worth much more than it currently is sitting at its $35.07 mark.

Profit Margins
Over the past six years, Coach has been able to increase their profit margins on sales at a steady rate. In 2000 profit margins were only at 7%, and last year, profit margins where at a whopping 22.7%. It will not be surprising if Coach is able to hit the 25% mark this year.

Total Debt to Total Assets
The total debt to total assets ratio has been decreasing at a slow rate for Coach.? Even though this ratio is decreasing at a slow rate, and as of last fiscal year’s results the ratio is at 23.34%, it is pleasing to know that Coach is able to finance the majority of its activities through equity rather than through debt, which would mean that if overall conditions were to be bad Coach would be able to still hold strong in the market in terms of its return on equity.

Return on Equity
Ever since Coach has gone public its return on equity has been between 18.14% and 43.17%. For the past four years, return on equity has been growing at a steady rate from the low 30% range into the high 30s. I would expect Coach’s return on equity to remain in the high 30% range, but once again it will not be that surprising if they hit the 40% range.

Price/Earnings (P/E) Ratio
Based off of the market close prices right before the fiscal year end, Coach’s P/E ratio had been growing at a steady rate, and as of the last three years, the P/E ratio has held its position in the low 30s range (31.64-33.95).? Earnings per share last year were at $1.00.? This year they are expected to be at $1.24.? If analysts are correct and Coach does meet their exact expectations one can expect Coach’s price to reach anywhere between $38.44 to $41.54 as long as the P/E ratio remains in the low 30s range.? I personally believe that the P/E ratio will be bumped up into the mid 30s range sending Coach’s stock price into the mid 40s range.

Finally, I would like to say that one should expect great things from Coach.? They have growing retail operations in Japan which should in due course start eating away at the market share of the more expensive and prestigious brand names such as Burberry and Louis Vuitton.? In addition to that Coach plans on releasing limited edition products in the near future which will give huge margins on them, which should surely help their income grow at amazing rates.

The ratios that were used in this blog post as well as additional ratios can be found in here [PDF File; 18.5KB].

The content in this blog post reflects the views and opinions of the author. The author will not be held liable for any investment decisions or activities that anyone takes based off of this information. This information should not be used to make investment decisions; rather it should be used for one to expand upon his/her own research.