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Bear of the Day: Coach (COH)

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It’s probably pretty obvious that I’m an investor. And as an investor I look to put money into a situation where it can work for me, not against me. I’m a firm believer that you should invest in assets that appreciate and lease anything that depreciates. That’s why I don’t buy new cars but I’ve been drooling over a 1970 Mach I for the last several years. It’s also why I don’t go to the mall and buy silly things that are going to be worthless in the future. Okay, so for the most part I don’t do that. But sometimes at Christmas or a birthday I get bamboozeled. A significant other or family member will ask for something ridiculous for a gift like a $500 purse. A $500 purse after they already own three $500 purses.

Okay, rant over. It’s not only that I can’t see the logic in purchasing another $500 purse, but I can’t see the logic in buying the company that makes them. And it’s not because I have some personal vendetta against the purses, I just listen to what the analysts have done with their earnings estimates. In the case of Coach (COH), it’s enough to make them my Bear of the Day.

You don’t have to trust me on this call. You can ask one of the 21 analysts that have lowered their estimates over the last 60 days for the current year or one of the 20 that did the same for next year’s numbers. The magnitude of the cut is substantial as well. The year’s number has dropped from $3.17 down to $3.04 but next year’s consensus fell from $3.44 all the way to $2.09. You read that right, analysts believe that earnings will fall nearly 33% next year. Not the direction you want to the earnings trend to be. This is a big reason why Coach is a Zacks Rank #5 (Strong Sell) in an industry that ranks in the bottom 43% of our Zacks Industry Rank.

The chart looks about as healthy as a Charlie Sheen EKG. Or mine for that matter when I’m at the counter with my credit card out. Let’s start by flashing back to July 2013. The luxury brand was trading above $60. For a few months it was a slow chop downwards. Late summer and early fall the stock hovered in the mid $50s, dropped harshly, then ran back up near $58. That last gasp for air was the last chance to jump ship. The market slapped COH down hard to start the year. Coach tried to hold up again near $50 until late April when it all fell apart.

How nasty is it? $34, nearly half of where it was less than a year ago. The 25 day moving average shifted by 5 days (25x5) which I use to help determine trend is light years away at $40.52. The last time COH traded above the 25x5 was late April. Just a week ago COH was above $40 but it’s just been getting worse since then. Put mildly, there are more attractive spaces in this market right now. Luxury retail brands losing favor in the market are not the place to be.

Bottom Line

There are much better investment ideas in this market than Coach right now. The downward revisions for earnings have been beating the stock into submission. Within the same industry investors should check out Zacks Rank #1 (Strong Buy) Vince Holding Corp .

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