Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Michael Kors Holdings Limited stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Michael Kors has a trailing twelve months PE ratio of 14.09, as you can see in the chart below:



This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.59. Moreover, if we focus on the long-term PE trend, Michael Kors’ current PE level is quite close to the lows reached in the last five years, suggesting that it could be a superb entry point.


Further, the stock’s PE also compares favorably with the Zacks classified Consumer Discretionary sector’s trailing twelve months PE ratio, which stands at 23.40. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
 


We should also point out that Michael Kors’ forward PE is roughly same as its trailing twelve months value, so we might say that the forward earnings estimates are incorporated in the company’s share price as of now. We define forward PE as current price relative to the Zacks Consensus Estimate for the current fiscal year.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Michael Kors has a P/S ratio of about 1.32. This is much lower than the S&P 500 average, which comes in at 3.18 right now. Also, as we can see in the chart below, this is almost in line with the lows for the stock, indicating it to be a solid entry point from this aspect too.



If anything, KORS is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Michael Kors currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Michael Kors a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Michael Kors is 1.01, a level that is slightly lower than the industry average of 1.41. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 4.12, which is far better than the industry average of 8.53. Clearly, KORS is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Michael Kors might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘A’ and a Momentum score of ‘F’. This gives KORS a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been quite disappointing. Both, the current quarter and full year have seen no upward revisions in the past sixty days, against ten and eleven downward revisions, respectively over the same time frame.

 This has had a dismal impact on the consensus estimate, as the current quarter consensus estimate has slumped by 26.3% in the past two months, with the full year estimate down 5.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

In light of these bearish trends, the stock has just a Zacks Rank #3 (Hold) which indicates that we are looking for in-line performance from the company in the near term.

Bottom Line

Michael Kors is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 17% out of over 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks categorized Textile – Apparel industry has clearly underperformed the broader market, as you can see below:



So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

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