Riding Coach for First Class Returns

Riding Coach for First Class Returns

Courtesy of Dr. Paul Price

Aspirational leather goods designer/manufacturer Coach (COH) got creamed in Wednesday’s trading when overall retail sales numbers showed poor year-over-year growth. COH dropped $3.39 per share (-5.89%).

The stock is down $25.53 (-32%) from the 52-week high of $79.70. Does that mean that earnings have been bad? FY 2012 (ended June 30, 2012) came in at $3.53, an all-time record . Q1 was up 5.5% from a year ago.

COH-2011-2012-source-BigCharts

The company is net debt free. Dividends were initiated in 2009 and raised every year since. The current quarterly payout is 30-cents for a yield of 2.22%.

That’s the highest yield ever on this remarkable growth stock. A look at the company’s past 10 years shows just how well Coach has performed. (Click on charts to enlarge)

COH-FY-2002-FY-2012

Coach suffered its only down year in FY 2009 due to the Great Recession. EPS dipped all of 7.3% (from $2.06 to $1.91). Buyers who bought during H2 of that decline snared a triple in one year and an ultimate shot at 600% gains.

Shoppers that would love to buy Coach merchandise at one-third off are passing up pretty much the same discount on the shares. The only way to get great values on high-quality stocks is to buy when things look bad. I was a buyer of Coach shares today, and we already own it in Market Shadows Virtual Value Portfolio. 

If you are worried about being too early … consider this 13-month combination buy/write out to January 2014.

COH-combo-details

COH-option-combo

COH-option-prices

Disclosure: Long Coach shares

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