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I'm attracted to companies that are:

- Trading at attractive valuations with strong expected growth.
- Have management with significant insider ownership and a long-term track record
- Little or manageable debt.

I think that Michael Kors (NYSE:KORS) is a compelling investment opportunity for growth oriented investors. The company has a strong management team, key competitive advantages and key potential markets. The stock is up 24%YTD and several institutional investors have been buying the stock in recent quarters.

I think that Michael Kors is a compelling growth pick to analyze because it continues to benefit from growing brand awareness, product category expansion, increased distribution and strong market positioning. The company is growing in different areas and markets.

I like the mix of growth and leadership.

In my personal blog, I separated 7 items to pay attention to when analyzing growth stocks. Michael Kors has many of those attributes.

The first step when analyzing Michael Kors is evaluating its recent earnings per share performance. Certainly, how a company has performed in the past is helpful information because it gives you strong clues about how it will handle the future. Barring some unforeseen circumstance, most companies move in a predictable manner.

Evaluating Michael Kors EPS and Revenue growth

The first step is analyzing Michael Kors last quarter EPS growth. The company generated 138% quarterly EPS growth when compared to the same quarter last year.

I like the fact that KORS generated more than 15% quarterly EPS growth. This came from strong management execution and increased product adoption levels. Management sounded very optimistic in the last earnings call. Another factor to consider is that Wall Street research analysts just upgraded KORS' EPS growth for the current year, increasing their EPS estimates by 26%.

In addition, Michael Kors generated 3 year average annual EPS growth of 111%. I'm encouraged to see a 3-year EPS growth rate stronger than 15% (minimum rate of growth I require for these kind of stocks).

In addition to analyzing EPS growth, I focus on evaluating KORS top line or revenue growth. The value of common stocks is, of course, closely tied to the sales power of the company, so an understanding of the company's growth potential for both the near and long-term timeframes is required in making a sound investment decision.

The company reported 57% quarterly revenue growth y/y. I require a minimum 15% revenue growth for these kind of companies and I am encouraged that Michael Kors generated growth levels above that.
When investing in a company, an investor wants to see sales grow or improve over time, not just the last reported quarter. Looking at the financials in comparison to previous years will give participants a much better idea of how well a company is doing. Michael Kors generated a 3 year average annual sales growth rate of 63%.
Michael Kors generated good levels of annual sales growth in past years. This is the result of a continued expansion into emerging economies and success in product innovation.

Management execution analysis

Another important ratio to calculate is Michael Kors' return on equity (ROE). Disarmingly simple to calculate, return on equity is a critical weapon in the investor's arsenal, as long as it's properly understood for what it is. ROE encompasses the three pillars of corporate management - profitability, asset management and financial leverage. By seeing how well the executive team balances these components, investors can not only get an excellent sense of whether they will receive a decent return on equity but can also assess management's ability to get the job done. Michael Kors' ROE is 52.35%.

Michael Kors has a strong ROE. This is important because this ratio is often said to be the ultimate ratio or the "mother of all ratios" that can be obtained from a company's financial statement. I think that management is executing very well.

Another important ratio to analyze is return on assets or ROA. Michael Kors' ROA is 38.9%. ROA tells you the level of earnings that were generated from invested capital (assets).

Institutional sponsorship

Several institutional investors have been buying KORS in recent quarters. This is important because hedge funds use strict fundamental procedures before investing in a stock.

In the recent quarter, both Lone Pine and SAC Capital among other prominent investors bought KORS at an average price of $56.50.

Valuation analysis

Valuation is a key step in any fundamental research analysis. Why? You buy financial assets for the cash flows you expect to gain. The price of a stock cannot be justified by assuming there will be other investors around who will pay a higher price in the future. This is the equivalent of playing an expensive game of musical chairs. As a prudent investor, you need to value the investment you are considering before buying it. Let's see how Michael Kors is valued against the market and its industry.

The market prices Michael Kors at 38x earnings in comparison to the industry average P/E of 17.4x and S&P 500 trailing P/E of 16.8x.

Michael Kors trades at a premium to the general market. I think that investors have high expectations on KORS projected EPS for 2013.

In addition, KORS has a P/E which is higher than its industry average. This indicates that investors expect higher growth for Michael Kors. It could come from management's goal of emerging markets expansion or just new product introductions.

The company also trades at 13.4x book and 6.3x sales.

Comparison to peers

In this step I analyze competitors. I track their most important multiples in order to easily understand how the market prices each company in comparison to KORS. Let's review each company:

Fossil (NASDAQ:FOSL) competes in several segments. It trades at 18x earnings and 2.16x sales (market cap of $6.25 Billion). In the last analyst day, Fossil management expressed they will keep expanding into emerging economies and that could be a potential threat to KORS.

Fossil trades at a lower P/E than KORS, probably reflecting that the market places higher expectations on Michael Kors.

The next competitor to review is PVH Corp (NYSE:PVH). This stock trades at a market cap of $9.37 billion billion, a P/E of 19.72x and a P/S of 1.55x.

The market places lower expectations on PVH Corp's sales than KORS, which is evidenced on PVH's lower P/S multiple. While a lower sales multiple is not a sure fact of reduced revenue expectations, sometimes it indicates that the market projects better revenues for Michael Kors.

Ralph Lauren (NYSE:RL) is another competitor to take a look on. It trades at a P/E of 22x and a P/S of 5.67x.

Conclusion

Michael Kors is a company that reported strong EPS and sales growth in the past quarter. In addition I consider it positive that the company has a strong balance sheet (very low debt/equity ratio). It is important to invest in shareholder oriented management teams that execute very well. In the case of KORS this can be evidenced in its high ROE and ROA measures. Lastly, the stock is trading at fair valuations considering its potential growth. I recommend the stock for the growth oriented investor.

Source: Michael Kors Growth Analysis