With the economic situation in Europe, you'd think consumers
would be spendthrifts. But one high-end clothing, footwear and
accessories retailer appears to have captured the hearts and
wallets of fashion-conscious Europeans.
Sincegoing public in December,shares of luxury retailer,
Michael Kors (NYSE:
-- named after the founder who is a judge on the popular TV show "
" -- surged nearly 190%. And, as I explain below, the technicals
point to more priceappreciation ahead.
According to amarket research report by Bain Capital, the global
luxury goods market is expected to grow 6% to 7% in 2012, despite
overall stagnant worldwide economic growth. This growth rate is
projected to be maintained at least into the middle of the decade.
As such, Michael Kors should continue to perform well, even with
continued global economic troubles.
The technicals certainly paint abullish picture.
From the $20IPO price in December 2012, shares shot up to a high
of $50.69 in just over three months. Encountering resistance at
this level, shares sank to a low of $39.73 by late April and
approached this low again in July.
As a result, a "V" shaped bottom formed, which was technically
confirmed after the company reported upbeat first-quarter results
in early August. Shares rocketed about $10 in one week,
successfully breaking the $50 resistance level.
This large gain, on higher-than-normalvolume , created the
flagpole of what appears to be a highly bullish pattern known as
aflag formation .
The next part of the flag formation, theconsolidation phase,
which has taken the shape of a small rectangle, has formed over the
ensuing weeks, as the stock has traded in a narrow range between
current support near $51 and resistance near $57.
Typically, flag formations resolve bullishly. As such, if the
stock can successfully break $57 resistance, it could move sharply
higher, especially since there would be no historical resistance in
The fundamentals support the bullish outlook. Over the past five
years (taking into account pre-IPO numbers), sales have increased
44% annually. When the company reports second-quarter results on
Nov. 13, analysts' project sales will hit $500 million dollars.
Same-store-sales in Europe are expected to increase a remarkable
50% from the year-ago period.
For the next quarter, ending in February 2013, analysts expect
revenue to expand 39%, to $520 million, compared to $373 million in
the comparable year-ago quarter. Due to an increase in European
sales, analysts' project full-year 2012 revenue will increase a
whopping 54% to $2 billion, from $1.3 billion last year.
Theearnings outlook is equally bright. Kors recently updated its
second-quarter earnings guidance, increasing the outlook to the
range of 38 cents to 40 cents per share, up from previous targets
of 33 cents to 35 cents. Based on a pricing strategy that puts
high-fashion products within reach of trend-conscious consumers (a
women's dress sells between $150 and $500), analysts expect
third-quarter earnings to rise a whopping 85% to 37 cents per
share. That's up from 20 cents in the comparable year-ago
As the company increases its global store count and license
partnerships across North America and Europe, analysts expect
full-year 2012 earnings to rocket 82% to $1.42 per share, from 78
cents per share last year.
Based on its strongearnings potential , solid technical growth
outlook and strong price performance, Investor's Business Daily
recently ranked Michael Kors third on the IBD 50 list of leadership
Given the strong technical and fundamental growth outlook, I
plan to go long on the luxury retailer.
Risks to consider:
High unemployment and a persistently weak globaleconomy have so
far not stopped fashion-conscious shoppers from buying the Kors
label. However, if weak economic conditions prevail, or the brand
falls out of favor, Kors could see a loss in customers. For the
time being, however, the trendy label's outlook looks highly
Action to Take -->
Buy Michael Kors at themarket price . Set stop-loss at $44.30,
slightly below past resistance. Set initial target at $64.98 for a
potential 20% gain.
This article originally appeared on TradingAuthority.com:
Surprising Triple-Digit Gainer's Chart Signaling
More Upside Ahead
-- Dr. Melvin Pasternak
Melvin Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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