Coach’s brand transformation fake-out

Victor Luis, Coach’s CEO, has told investors about his brand transformation plans.  In practice however, many aspects of his brand transformation plan have not panned out.  Coach has succeeded in discouraging its fans from shopping at retail/mainline stores without actually reducing the discounting of the brand.

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Michael Kors (KORS) – Are these LEAPs cheap?

(This idea is not liquid as it involves LEAP options expiring Jan 2017.)

KORS is a luxury goods company with extremely high growth (44%+) and returns on capital (86%).

The trade I am interested in is going long KORS call options and long COH put options.  I think that both trades are compelling by themselves.  See my old and brief writeup on COH for my thesis on that company.  This post will focus on KORS.  The reason to go long KORS call options are:

  1. Implied volatility is reasonably low (around 34-35).
  2. Given the company’s ridiculously high growth, there is a good chance that the stock may see a lot of volatility on the upside.
  3. The P/E ratio is around 16.6 and the PEG ratio is 0.84.  Arguably, the company is reasonably cheap from a GARP perspective.

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