Tapestry Stock: Bullish & Cheap Ahead of Earnings (NYSE: TPR)

Sitthipong Pengjan

The Consumer Discretionary (XLY) sector has led the market higher over the past month (ETF performance heatmap below). Retail stocks have generally seen a rebound, but there is some uncertainty with the pivotal back-to-school buying season underway. Back to school is actually the second busiest shopping time of the year (the December holidays are the first). Meanwhile, China is still a question mark. There’s a luxury goods company at the heart of it all: Tapestry (NYSE: TPR).

One-Month ETF Performance Heatmap: Strong Discretionary, Weak China

One-Month ETF Performance Heatmap: Strong Discretionary, Weak China

Finviz

According to Bank of America Global Research, Tapestry is a leading specialty retailer positioned in an attractive segment of the market (affordable luxury). Tapestry includes the Coach, Kate Spade and Stuart Weitzman brands and is best known for its accessories (particularly handbags). Its products are mainly sold through retail stores, outlet stores and online. The brands have a strong presence in some department stores and specialty outlets.

The $8.5 billion market capitalization of consumer discretionary stocks is sensitive to both domestic consumer issues and macro issues in China. Unsurprisingly, the TPR is down 17% from a year ago, but has bottomed out with many China-sensitive stocks much earlier than the broad US stock market and consumer discretionary sector in 2022.

According to the valuation, Tapestry is trading at just 10.9 times last year’s GAAP earnings, according to The Wall Street Journal. TPR posted a solid return for a small retailer: 3.0%. A potential bullish feature ahead of its mid-August earnings date is high short interest of 9.9%. BofA analysts see the retailer’s earnings per share growing well into 2024 at a rate above the market. Given a low earnings multiple and impressive growth rate, stocks look cheap. Its EV/EBITDA is reasonable and the company has a high free cash flow yield.

TPR: Earnings, valuation, dividend forecasts

TPR: Earnings, valuation, dividend forecasts

BofA Global Search

Tapestry, like many retailers, releases results the week of August 15th. The New York-based company’s August 18 4Q report crosses the wires before the opening bell that morning. The corporate events calendar doesn’t stop there, however. According to Wall Street Horizon, Tapestry is hosting an Investor Day on Friday, September 9. Investors should expect some volatility around this date as key insights can be gleaned from TPR’s management team.

Tapestry Calendar: Earnings Aug. 18, Investor Day Sept. 9

Tapestry Calendar: Earnings Aug. 18, Investor Day Sept. 9

wall street skyline

The technical grip

TPR had wrapped up in what is sometimes called a bullish lower triangle formation. A price target on such a pattern is found by taking the vertical length from the start of the triangle and adding it above the breakout point. In this case, it’s $11 plus about $32. This gives a target of $43. Interestingly, the $42-$43 range was resistance earlier this year, so it’s a natural place for stocks to head as long as $32 holds. If $32 fails, look for the next support at $26 – the May low.

TPR: breakout bullish, price target $43

TPR: breakout bullish, price target $43

Stockcharts.com

The essential

I like what I see with TPR. Stocks are cheap and growth prospects are strong. The stock also broke out of a triangle consolidation pattern. I think the stock is going to $43 before taking a break. Be aware of the bearish scenario – if the TPR breaks down to $32.

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