Solid Fundamentals Make Coach Inc. a Good Investment

A constituent, not just for the holiday season in the Claymore/Robb Report Global Luxury Index ETF (ROB) is the New York- based company, Coach Inc. (COH). It also is a holding the Clear Large Cap Growth portfolio so it is well followed at Clear. Its signature leather designs and upscale marketing of accessories and gifts are world renown.

Founded in 1941, Coach began as a family-run workshop in a Manhattan loft. Inspired by a baseball glove, and after refining it to be softer and stronger, the infamous glove-tanned Coach handbag was created. Since then, there have been innovations in leather finishes, new grains and colors, and modern materials, but each collection embodies the same principles of classic design and American style. Coach has translated its appeal for products and gift items for both men and women seamlessly from continent to continent.

So many people this year will say "on my list, and make no mistake that my list is from Coach and includes:" handbags, cosmetic cases, belts, wallets, card cases, jackets, sweaters, gloves, hats and scarves, business cases and computer bags, and don't forget, pet accessories. The company also offers luggage and travel kits, jewelry and fragrances, footwear and watches.

Coach sells its products through direct-to-consumer channels, including its own retail stores and factory stores, its online store and catalogs. Its products are also sold through indirect channels comprised of department store locations in the United States, internationally, freestanding retail locations, and specialty retailers. As of June 30, 2007, it operates 259 retail stores and 93 factory stores in North America, and 137 department store shop-in-shops, retail stores, and factory stores in Japan.

An analysis of its fundamentals reveals a firm in sound financial standing and potentially undervalued. Even though it disappointed the street with its most recent earnings report it still boasts profit margins of 38.10% which is almost triple its peer group average and on revenues of $2.76 billion. The firm has grown to a market capitalization of $12.81 billion. The company has earned a one-year return on equity (ROE) of 42.28%, and a Return on Assets (ROA) of 30.18%. Top line growth continued last quarter at 27.80%.

The current stock price is down almost 30% from six months ago, and is down almost 20% from a year ago. Even with such strong numbers, we calculate the stock is well over-punished. We believe that based on its fundamentals the market will wake up, and realize that a Price to Earnings ratio of 19.13 is absurd for a company this profitable, while growing this fast.

Disclosure: Mr. Corn is CEO of Clear Indexes LLC and Clear Asset Management Inc. Coach Inc. (COH). is a constituent in the Claymore/Robb Report Global Luxury Index licensed for the ETF (ROB) for which Clear Indexes LLC is a consultant. It is also a holding in the Clear Large Cap Growth portfolio. Mr. Corn owns shares of the ETF (ROB) and shares of (COH) directly through his participation in the portfolio.