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Coach, Inc. Message Board

  • waddawhat2002 waddawhat2002 Jul 14, 2008 7:28 PM Flag

    The case for Longs


    02' EPS = .24 cents
    03' EPS = .40 cents
    04' EPS = .68 cents
    05' EPS = 1 dollar
    06' EPS = 1.27
    07' EPS = 1.69
    08' EPS = 2.06 Yearly estimate

    I really like that strong trend line up and 5 straight years of positive earnings growth ( plus projected growth this year).

    As a contrarian and value investor, here you are finding a company that delivers more EPS every year at a discounted price. Coach has a history of nothing but success and delivering more and more year after year. They have built a strong brand name and reputation in the fashion world.

    CEO Lew Frantfort on March 14, bought 50,000 shares for over 1.3 million dollars at a price of just under 28 per share.

    I believe insider selling can happen for a number of reasons ( cash crunch, increase diversification, or overpriced stock), where as insider buying generally happens because the CEO feels like the stock price is cheap.

    In the last conference call we saw a very tough enviornment and the CEO still said he was looking at lower level Double digit growth while other consumer based businesses were getting killed.

    This isn't a retailer that is getting killed and losing money, coach is still churning out positive results.

    The CEO said the growth story is not even close to being finished and he believes North America can "easily" support 500 stores which would be double. Not only that but there is Coach Japan, soon to be China, South Korea, Russia, etc. etc. etc.

    Look at the margins they make on these overpriced bags? They have no debt, buy back stock, and generate strong cash flow. They not only sell bags now, but are the #1 "accessory" company out there which includes belts, shoes, and even some jackets.

    The media headlines are laced with doom and gloom, but look at the numbers. Look at their earnings increase every single year. Look at them guide forward with double digit growth while the other consumer businsses are puking.

    The shorts have correctly played the market sentiment this summer, but in the long run the stock market is a weighing machine and not a voting booth.

    Now I don't think you should put 100% of your retirement account, 50% or even 25% of it into Coach (Gnome), but it is something worth owning. This stock has been dying a slow death but it can come back in a hurry.

    Note: I am a long from 30.9 and have the cash to add to my position if needed. :)

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    • Good post, and well thought out.

      I'd like to add that the technicals very strong as well... and that 25 looks like a more than fair price. There is also a new double bottom forming recently....

    • Wad, good post. Probably the best long reasoning in some time. Good to see you posting sober!

      I did go long a small % of my tradeable portfolio recently at $25.65 or so. The amateur technician in me led me to short from the mid-30's to the point that I covered. I decided to go long on a whim, as I think fundamentals do provide somewhat of a floor. I think you did a good job of summarizing the numbers, but sufficed to say, the risk/reward proposition looks good from here.

      As for Gnome, if he wasn't such an antagonist and so arrogant, ignorant, stubborn and just a plain ass, I wouldn't have said what I said. But if there was a way that everyone else could make money and him to lose it all, sign me up and I wouldn't feel one ounce of guilt. Call it my version of schadenfreude.

      That said, I'm not going to refuse to take the same side of the trade, because at the end of the day, it's all about making a return when you see a reasonable opportunity. I'm agnostic on the method - short, long, puts, calls, spreads, etc.

    • Wad,

      Good post. I agree with most of what you said. The earnings growth has been good...I guess now we all wait and find out whether that continues, stalls, or gets worse. I hope for your sake it continues to grow.

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