The Sexiest Brand on Earth

Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Michael Kors (NYSE: KORS) is the sexiest brand on Earth. Michael Kors is a rapidly growing luxury brand, specializing in purses and watches. They also design clothes, shoes, sunglasses, fragrance, belts, and several other products. A simple way to put it: Michael Kors is like the Channing Tatum or Bradley Cooper of the stock world.

Over the last year or two, when the holiday season rolls around, all you see on Facebook and Twitter are links about a Michael Kors purse or watch. Around Christmas in 2011, I noticed an unusual amount of women posting about Michael Kors watches that they wanted as a gift. At first, I thought it was only because of the song in which Nicky Minaj repeated the name Michael Kors over and over. However, then I realized that it was a new trend. This trend has yet to die down and is actually getting stronger. It is now normal to not only have one purse or one watch, but to have multiple of each in different sizes, colors, or designs. Men have increasingly joined the trend by buying the incredibly fashionable watches, and Michael Kors continues to deliver the products demanded. 

Coach (NYSE: COH) and Fossil (NASDAQ: FOSL) are two of Michael Kors' top competitors. Coach designs products in the same categories as Michael Kors. Coach used to have one of the most in-demand line of purses, but their sales have seen a steep decline as of late. In fact, in their most recent quarter, Coach reported disappointing earnings. They missed both earnings per share and revenue expectations, sending the stock tumbling over 15%. Most importantly, Coach's CEO came out and said the disappointment was due in part to "intensified" competition along with "increased marketing activity." With my observation of Michael Kors being in high demand by consumers and Coach saying that competition increased, I can conclude that Coach has lost a huge market share to Michael Kors. I think the fall of Coach is just beginning, and if they do not make changes soon, they will fall over 25% more.

Fossil offers many of the same products as Michael Kors, but they are mainly a competitor in the watch space. In fact, Fossil is actually the manufacturer of Michael Kors watches. Fossil has great handbags and shoes, but I and other consumers do not see them as be as luxurious as Michael Kors. However, Fossil watches are some of the greatest pieces of work in the world. Unlike Coach, Fossil is continuing to grow and they are beating expectations as they go. Still, Fossil watches do not have the huge hype that Michael Kors has. Personally, I think Fossil needs to have a marketing campaign and make their watches seem as luxurious as they are. Even then though, the luxury of the watches still do not come close to surpassing the sexiness of Michael Kors'. Fossil has a direct impact on Michael Kors when it comes to earnings, so it is important that both continue to report strong.

Michael Kors has been on an absolute tear since going public in December of 2011. They priced their initial public offering at $20 per share and is currently sitting around $57 per share. Even with this large run, Michael Kors is a cheap stock. The chart below shows that their earnings have and are projected to grow at an incredible rate.

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At $57 per share, Michael Kors is trading at 45.2 times earnings, but just 27.8 times 2013 earnings and 21.8 times 2014 earnings. The growth will not stop there. I believe Michael Kors will blow away earnings this quarter and increase their outlook for the coming quarters. This should propel the stock above $65 this year and above $80 by 2014. I see Coach trading sideways for the year and coming down slowly as they continually lose share to Michael Kors and other competitors. Fossil is a strong company and should have no problem continuing higher. I am initiating an outperform for Michael Kors on CAPS and an underperform on Coach. Michael Kors is a STRONG BUY, but do not chase this one when it spikes higher after earnings.

JoeySolitro1 currently owns a long position in Michael Kors.

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