Tapestry is an American luxury goods company that owns some popular brands like Coach, Kate Spade, and Stuart Weitzman. It sells its products directly to consumers through its retail stores and e-commerce platforms. Also, it sells its product to wholesalers.
Tapestry’s business has been growing in the past few years, with its revenue moving from $4.9 billion in 2020 to over $6.6 billion in the last financial year.
However, the company has faced substantial competition from its European rivals like Burberry, Kering, and LVMH. This explains why it unveiled a big merger with Capri Holdings, the parent company of Versace, Jimmy Choo, and Michael Kors.
Tapestry’s stock was trading at $58 on Friday, while the HypeIndex figure jumped to 200%.
Positive hype
Tapestry’s stock jumped after the US successfully blocked its merger with Capri a few months ago. Analysts believe that the buyout would not help to boost its business substantially.
Tapestry then decided to terminate the deal this week, citing the substantial appeal costs. Instead, the company decided to repurchase stock worth $2 billion. It also decided to redeem the acquisition-related debt.
The company also unveiled plans to reinvest in its brands and businesses, boost its shareholder returns, and maintain an investment-grade rating.
Tapestry’s business is doing well as evidenced by the recent earnings report. The company’s sales came in at $1.51 billion despite a 40bps forex headwind. Its gross profit also jumped to $1.13 billion.
Most of its revenue growth came from Stuart Weitzman followed by Coach, while Kate Space remained under pressure.
Most analysts tracking the company have a bullish rating. The average stock target is 60, slightly higher than the current $57. Some of the most optimistic analysts are from Raymond James, Baird, Telsey, and Citigroup.
With the merger with Capri being terminated, analysts expect that the management can grow its business and boost its profits.
Tapestry is widely seen as an undervalued company since it trades at a forward P/E ratio of 11.9 and EV to sales of 2.
Tapestry has continued to reduce the number of its outstanding shares through repurchases. As a result, the number of outstanding shares has dropped from 290 million in 2019 to 233 million, which has helped to boost its earnings per share (EPS).
Some analysts believe that Tapestry could become a buyout target from a company like LVMH or a private equity firm.
Negative hype
The company’s Kate Spade business is not doing well as demand of its products continues slowing.
China, a key market for Tapestry, is slowing substantially, with some of its malls seeing weak user traffic.
Tapestry is facing substantial competition from European brands like LVMH, Kering, Burberry, and Hermes.
A key concern is that its innovation has not done well in the past few years, which explains why its sales have slowed.
Tapestry could become a victim of the upcoming Trump’s tariffs on China since it has a large business there
Tapestry stock analysis
Tapestry stock has done well in the past few months as investors bet on the health of luxury goods consumers. It has moved above the important resistance level at $47.54, its highest level in February this year.
The stock has also moved above the Ichimoku cloud indicator, while oscillators like the Relative Strength Index (RSI) and the Stochastic Oscillator have all pointed upwards. The Average Directional Index, a popular indicator for measuring an asset’s strength, has risen to 30, meaning that the trend is strong.
Therefore, the stock will likely continue rising as bulls target the key resistance level at $65. However, a drop to retest the support at $47 is a possibility.
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