The stock market might be down some 5% this year but that doesn’t mean money can’t be made on the long side.
Momentum stocks are usually a good bet especially when earnings momentum exceeds expectations.
That’s the case with Michael Kors (NASDAQ: KORS) as shares jumped 17% on Tuesday after a very strong earnings report.
The high-end fashion and accessory company blasted expectations, reporting a profit of $1.11 per share in the fourth quarter. Analysts expected a profit of 86 cents per share.
Revenues also topped estimates. Michael Kors had sales of $1 billion versus an expectation of $860 million.
Same-store sales in North America were up an impressive 24%. There were no signs of the supposedly weak consumer here.
An interesting competition is developing between Kors and Coach (NYSE: COH). For some time, Coach enjoyed a dominating position in the luxury accessory market.
Not anymore! Kors is gaining a foothold in the U.S. and enjoyed a very successful holiday season. The same cannot be said of Coach.
While shares of Michael Kors stock are flying, shares of Coach are slipping.
For 2014, Kors raised guidance. The company expects to make $3.08 per share this year on sales of $3.185 billion. Those numbers are well above consensus estimates of $2.77 to $2.81 and sales of $2.95 billion.
It was as perfect a report as a company can receive. With today’s gain, Michael Kors stock is up 11% on the year. That compares quite favorably to a market that is off 5% in 2014.
Coach shares, by comparison, are down nearly 20% this year.
Occasionally investors need to stick with things that are working, especially in a challenging market environment. Kors is working and it’s supported by earnings.
The company consistently exceeds expectations and shares are only priced with a slight premium to expected profit growth.
Analysts expect Kors to grow profits by 23% from the current fiscal year ending March 30, 2014 to the next. At current prices, Kors shares trade for 31 times current fiscal year estimated earnings.
In a market of disappointment, it’s more than OK to pay a premium valuation. Nothing hurts a stock more than missing earnings estimates. With Michael Kors stock you don’t really need to worry about that.
At some point the music will stop, but now is not that time. I’d be a buyer of Michael Kors stock as there are simply too few companies that are crushing it on both the top and bottom line, as is happening here.
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