'Real Deal' Stocks: Volume 4 (Nike, Ralph Lauren, And V.F. Corporation)

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 |  Includes: COH, FOSL, NKE, PVH, RL, TIF, UA, VFC
by: Stan Stafford

Summary

"Real Deal" is an acronym I created to help measure stocks against eight different criteria, such as revenue and earnings growth, returns on assets and equity, and price returns.

In this article, I will be reviewing eight stocks in the apparel, accessories & luxury goods industry.

Three of the stocks pass the "Real Deal" criteria, while five of them do not.

Overview

Previously, I wrote volume 3 of a series of articles related to what I like to call "Real Deal" stocks. Real Deal stocks are stocks that I believe are worth strong consideration as buys for long-term investors. "Real Deal" is an acronym that refers to the following metrics:

  • R - Revenue Growth
  • E - Equity (more specifically, Return on Equity)
  • A - Assets (more specifically, Return on Assets)
  • L - Leverage (more specifically, Financial Leverage)
  • D - Dividend Growth
  • E - Earnings Growth
  • A - Advanced Metrics
  • L - Long-Term Price Returns

When reviewing whether or not a stock is a Real Deal stock, the stock has to pass criteria set forth for seven out of the eight metrics listed above. For volume 4, I will be looking at the following stocks from the Apparel, Accessories & Luxury Goods industry:

  • Coach (NYSE:COH)
  • Fossil (NASDAQ:FOSL)
  • Nike (NYSE:NKE)
  • Polo Ralph Lauren (NYSE:RL)
  • PVH Corporation (NYSE:PVH)
  • Under Armour (NYSE:UA)
  • Tiffany & Co. (NYSE:TIF)
  • V.F. Corporation (NYSE:VFC)

NOTE: One thing I didn't mention in volume 1 of this article is that while the metrics used will not change, the criteria individual companies are gauged against will vary slightly based on the industry under review.

Revenue Growth

In order to pass the revenue growth criterion of a Real Deal stock, the stock has to have averaged annual revenue growth of 15% or higher over the last five years.

Looking at the chart below, you can see that only PVH, Under Armour, and Fossil Group pass this criterion, with revenue growth of 248.90%, 226.60%, and 126.10% respectively.

COH Revenue (<a href=

COH Revenue (TTM) data by YCharts

Equity (Return on Equity)

In order to pass the equity criterion of a Real Deal stock, the stock has to have a return on equity value of over 15%. Looking at the chart below, you can see that Tiffany and PVH are the two stocks that do not pass this criterion, with returns on equity well below 15%.

COH Return on Equity Chart

COH Return on Equity (TTM) data by YCharts

Assets (Return on Assets)

In order to pass the assets criterion of a Real Deal stock, the stock has to have a return on assets value over 10%. Looking at the chart below, you can see that once again, Tiffany and PVH are the two stocks that do not pass this criterion.

COH Return on Assets Chart

COH Return on Assets (TTM) data by YCharts

Leverage (Financial Leverage)

In order to pass the leverage criterion of a Real Deal stock, the stock has to have financial leverage of 0.50 or less.

Looking at the chart below, you can see that PVH and Fossil Group are the two stocks that both have financial leverage values greater than 0.50.

COH Financial Leverage (Quarterly) Chart

COH Financial Leverage (Quarterly) data by YCharts

Dividend Growth

In order to pass the dividend growth criterion of a Real Deal stock, the stock has to have paid a continuous dividend that has grown substantially since 2010.

Looking at the chart below, you can see that Ralph Lauren, Tiffany, Coach, VFC, and Nike are the five stocks that pass this criterion, while Fossil Group, PVH, and Under Armour do not.

COH Dividend Chart

COH Dividend data by YCharts

Earnings Growth

In order to pass the earnings growth criterion of a Real Deal stock, the stock has to have averaged earnings growth of 20% or higher over the past five years.

Looking at the chart below, you can see that PVH, Tiffany, and Coach are the three stocks that do not pass this criterion, with earnings growth of 29.77%, 38.02%, and 72.01% respectively over the past five years.

COH EPS Basic Chart

COH EPS Basic (TTM) data by YCharts

Advanced Metrics

For Advanced Metrics, I will be looking at two items: the value score and the fundamental score calculated by YCharts. Details regarding these two scores can be found here and here. In order to pass this criterion, stocks need to have a fundamental score of 9 or higher and a value score of 5 or higher.

Looking at the chart below, you can see that all eight companies have a fundamental score of 9 or 10.

COH Fundamental Score Chart

COH Fundamental Score data by YCharts

For the value score, only Coach, Ralph Lauren, Nike, and V.F. Corporation pass with scores of 5 or higher.

COH Value Score Chart

COH Value Score data by YCharts

Long-Term Price Returns

In order to pass the long-term total price returns criterion of a Real Deal stock, the stock has to have beaten the S&P return over the course of the past five years.

Looking at the chart below, you can see that Coach is the only company out of the eight that did not pass this criterion, increasing its stock price just 22.18% over the past five years, compared to the 90.98% increase of the S&P 500.

COH Chart

COH data by YCharts

Conclusion

Let's take a look at how each stock measures up.

R E A L D E A L
Coach Fail Pass Pass Pass Pass Fail Pass Fail

Fossil Group

Pass Pass Pass Fail Fail Pass Fail Pass
Nike Fail Pass Pass Pass Pass Pass Pass Pass
Ralph Lauren Fail Pass Pass Pass Pass Pass Pass Pass
PVH Pass Fail Fail Fail Fail Fail Fail Pass
Tiffany Fail Fail Fail Pass Pass Fail Fail Pass
V.F. Corp. Fail Pass Pass Pass Pass Pass Pass Pass
Under Armour Pass Pass Pass Pass Fail Pass Fail Pass
Click to enlarge

Looking at the table above, you can see that Nike, Ralph Lauren, and V.F. Corporation are the three stocks that passed the necessary criteria to be considered "Real Deal" stocks, each having failed just one metric.

Last month, Nike reported strong performance in its quarterly report. The company continues to increase revenue and earnings at an attractive rate. The company is trading at a premium compared to historical valuations, and you may be able to find a better entry point, but long-term investors should not stay on the fence too long, as Nike's performance is expected to remain strong, in part due to the company's World Cup sponsorship.

Like Nike, Ralph Lauren also posted solid results in its most recent quarterly report. The company raised its full-year guidance and sees a favorable long-term outlook in the luxury goods industry to provide increased benefits to the company. Ralph Lauren continues to reward shareholders with both dividend increases and share repurchases.

As the Real Deal stock with the highest earnings growth over the past five years, V.F. Corporation continues to be a great investment. The company continues to expand its product line and its market reach, increasing sales significantly overseas. With impressive dividend growth and expected double-digit earnings growth this year, I believe V.F. Corporation is a very solid buy.

While I believe that Nike, Ralph Lauren, and V.F. Corporation are great companies, it doesn't mean that the other companies included in this article should be avoided.

Two things to keep in mind when looking at this article (or future volumes):

1. The "Real Deal" criteria are not a one-stop shop for stock buying. It should only be the first step in taking a comprehensive look at investment opportunities. As always, I suggest individual investors perform their own research before making any investment decisions.

2. The criteria I have set up for "Real Deal" stocks heavily favor dividend-paying stocks, since non-dividend paying stocks will have to pass all other criteria in order to be considered a passing stock.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.