I first wrote about Ralph Lauren (RL - Analyst Report) as the Bear of the Day almost 2 years ago in June of 2014 as its declining earnings momentum earned it a spot in the cellar of the Zacks Rank.
Since then, the stock completed a multi-year head-and-shoulders top in December of 2014 just below $190 and has proceeded to trend down, severely underperforming the stock market and other apparel companies.
RL shares have spent the past few months bouncing off of 5-year lows in the low $80s. Here's what I wrote two years ago about the warnings before this collapse, as I observed a decline from $190 to $150 over a year period from the middle of 2013...
The steady decline in shares of Ralph Lauren has had a single, constant precedent in 2014: steadily declining EPS estimates. Followers of the Zacks Rank know this because the stock has earned either a #4 Sell or #5 Strong Sell Rank consistently all year.
I doubt that RL branded fashion has lost much appeal among its affluent devotees. But maybe some competition from Michael Kors (KORS - Analyst Report) has nibbled away at the franchise.
Earnings Trend Dictates Price Trend
This is a perfect example of why it's so important to use the Zacks Rank to identify earnings momentum of both good stocks and bad ones.
Here's the Zacks proprietary Price & Consensus chart which plots the changes in annual earnings estimates against the stock price and quite graphically describes the investing situation for RL in the past few years...
You can see that 2017 estimates have turned up a bit recently, with the full-year consensus rising in the past 30 days from $6.73 to $6.90. But during the same period, current year EPS was knocked down from $6.46 to $6.34. To me, the outlook remains cloudy.
Bottom line: Ralph Lauren will endure as a preferred brand and business, but before you invest in the company's shares, be sure to check the Zacks Rank.
Until the earnings estimates stop going down and start going back up, don't put these shares in your closet. The Rank will let you know when the turnaround is coming.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.