Should Investors Be Wary of Coach, Inc. Stock Today?

By Markets Fool.com

Investors pushed shares of Coach higher last month after the company delivered better-than-expected results for its fiscal second-quarter. However, the stock is still down more than 18% over the past year, which has some on Wall Street wondering if now is a good time to enforce the investing maxim of "buy low and sell high." Yet with the luxury goods retailer in the midst of a massive turnaround, is now really the time to buy Coach stock?

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The problem with impulse buys
It's true that Coach's stock currently trades at 18 times earnings, which is below the industry average P/E of 19.53. Also, Coach is trading near the low end of its 52-week range, with its stock price hovering around $38 per share today. On the surface, this could lead some investors to believe Coach is attractively priced -- particularly compared to rival Michael Kors' stock, which now trades north of $72 a share.

However, a closer look reveals that Coach's recovery is still far from assured. In fact, we need only look to Coach's latest quarter for evidence that the company and its stock may face additional volatility in the quarters ahead. North American sales, for example, fell 20% to $785 million during the retailer's latest quarter. Meanwhile, same-store sales in the region plummeted 22% during the period, despite management's ongoing efforts to reinvigorate sales at underperforming locations.

On top of this, both Coach's Q2 earnings and revenue were down year-over-year, though the numbers were slightly better than what the Street had expected. This tells us that Coach's latest earnings beat was less the success of its ongoing turnaround efforts and more the result of analysts' exceedingly low expectations for the retailer.

Source: The Motley Fool.

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Investors should also consider the significant amount of resources and investments Coach must pour into its reversal strategy going forward. Increased spending on store renovations, new product launches, and marketing, for example, could squeeze margins over the near-term. Still, the company's management has been forthcoming about these changes. "We are on track with the strategic agenda outlined in June and know that our transformation will take time -- it is an iterative process that requires significant investment," said Victor Luis, Coach's chief executive.

Nevertheless, given the ongoing challenges Coach faces in rebuilding its brand, I believe buying the stock today would equate to an impulse buy that investors may later regret. Therefore, I plan to sit on the sidelines for now until Coach can demonstrate a meaningful comeback in sales and traffic.

The article Should Investors Be Wary of Coach, Inc. Stock Today? originally appeared on Fool.com.

Tamara Rutter has no position in any stocks mentioned. The Motley Fool recommends Coach and Michael Kors Holdings. The Motley Fool owns shares of Coach and Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.