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Tapestry, Inc. (NYSE:TPR), which is in the luxury business, and is based in United States, received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to $34.45 at one point, and dropping to the lows of $28.36. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Tapestry's current trading price of $30.78 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Tapestry’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Tapestry?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Tapestry’s ratio of 12.6x is trading slightly below its industry peers’ ratio of 17.35x, which means if you buy Tapestry today, you’d be paying a fair price for it. And if you believe that Tapestry should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. In addition to this, it seems like Tapestry’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Tapestry look like?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Tapestry’s earnings over the next few years are expected to increase by 39%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? TPR’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at TPR? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on TPR, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for TPR, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Tapestry. You can find everything you need to know about Tapestry in the latest infographic research report. If you are no longer interested in Tapestry, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.