COH: Valuation is Not a Catalyst

Takeaway: When the research tells us to stand our ground, that’s exactly what we’ll do. Valuation is not a catalyst. We're short COH into the print.


Keith asked me today if I’d stay short COH into the print. His quant models say that the answer is to short more here, and fundamentally, I can’t say that I disagree as the primary reasons we’re short it are still in-tact.

Specifically, and simply, revenue is decelerating while the cost of growth is rising. This should be fairly evident in Coach’s numbers for another 2-3 quarters at a minimum. Growth is dependent on the Legacy launch, as well as Men and to a lesser degree, China. At the same time, SG&A costs are rising in advance of the launch (which may or may not work), and Gross Margins are at risk as the financial triangulation of Sales Inventories and Margins rests in a tenuous point of our SIGMA analysis.

We concur that the stock looks cheap on next year’s numbers, but a) valuation is not a catalyst, and b) we’re 5% below the consensus this year (fiscal 6/13), and 9% below for the following year. We also hear the argument that sentiment is already bad, but we’re not so sure. In fact, we’re looking at about 4% of the float short, while historical peaks have been double that. Interestingly enough, higher short interest has not proven to be a deterrant from making money here on the short side. Check out the chart below to track the historical trend. Lastly, the stock has been acting poorly over the past few days, but note that it’s still $2 above the closing price on the day the company last released – and we have no reason to believe that things have improved materially.

The biggest caveat is that they’re likely to start with their new reporting structure with this print. There will be confusion on the release. People will be slow to react, and any positive spin by the company will be tough to contextualize. But if they stop reporting comps, or other important info, at a time when sales growth WILL slow and costs WILL rise, it can’t be good.


It’s always easy to get spooked headed into a print with any position – long or short. But when the research tells us to stand our ground, that’s exactly what we’ll do. Again, valuation is not a catalyst.

Coach’s SIGMA Positioning is Not Good

COH: Valuation is Not a Catalyst - COH S


Short Interest Is Nothing To Be Afraid of Here

COH: Valuation is Not a Catalyst - COH SI

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more