chafic.net

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.