Are You Getting a Reasonable Value With This Stock?
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The salesman knows nothing of what he is selling save that he is charging a great deal too much for it. - Oscar Wilde
The other day my wife and I were out spending a what I thought was a typical Saturday of running errands and enjoying each other’s company. More often than not we’ll walk into a store with no real intent other than simply passing the time. This Saturday I came to find out wasn’t like one of those I was accustomed to. She was on a mission and I was just along for the ride.
The mission was one I thought she’d accomplished months ago. I remember painstakingly shuttling her around from Macy’s (NYSE: M) to Target (NYSE: TGT) to Kohl’s (NYSE: KSS) and back again in pursuit of something I came to realize was simply a mirage. The mission this time as it has been before much to my chagrin was looking for the perfect purse.
As we walked into Kohl’s and she announced she was once again taking up the hunt for that special bag I’m sure my audible sigh was heard by all. This was not how I wanted to spend my Saturday, and I tried to persuade her that the purse she had was doing just fine. Undeterred she began her quest and as luck would have it, she found that rarest of all treasures, the perfect purse, in what seemed to be but mere moments. The problem was the price tag which was a bit more that my value conscious wife thought was reasonable.
You see, I’m such a lucky man as I don’t have to dote on my wife with such expensive trinkets like a Coach (NYSE: COH) bag or a something just as pricy from Michael Kors (NYSE: KORS). If she were an investor, she’d with great certainty lean over to the value side of investing. The problem with such pursuits is that they are very time consuming as my treks around town in her pursuit of a deal have proven. It’s unsurprising then that the pursuit of true value stocks is a just as painstakingly slow.
Take her beloved Kohl’s; their shares are selling at about 12.5 earnings which basically what price the market as a whole is trading. If we were looking for a relative value to the market we wouldn’t find it at Macy’s nor Target either as their shares fetch about 13 and 14 times earnings respectively. A look at the pricier purveyors shows Coach at about 16 times while newly public Michael Kors is about as expensive as their products at over 50 times earnings.
None would appear to be offering a reasonable value for a value conscious shopper like my wife. She’ll only make it a point to go out of her way to shop at Kohl’s if she’s armed with both Kohl’s cash and a 30% off coupon. Of the retailers I’ve mentioned Kohl’s does offer investors the most cash back thanks to their dividend yielding 2.4%. Target’s just slightly less at 2.2% while Macy’s is at 2% and Coach is right in the middle at 2.1%. Still, that’s not enticing enough of a yield to make me go out of my way in making room in my portfolio for any one of them.
While I wouldn’t characterize any of these stocks as true value stocks, Kohl’s and Coach are trading at a reasonable 1.03 and 1.08 times their growth rates. Meanwhile Target, Michael Kors and Macys are all priced more than 1.2 times their growth. So the case could be made that both Kohl’s and Coach are at least reasonable values. We all want to get a deal and it’s tough to find one in the stock market. Sometimes the best we can hope for is to get a good company selling for a fair price. I think that’s what we’ve got in both Kohl’s and Coach.
Though, when it comes down to their purses I’m reminded of what Oscar Wide said about salesmen in that they’re charging way too much for what they’re selling. I just have to shake my head at the price tags attached to those bags which consist of a little bit of leather sewn together. I don’t know how anyone could pay that much money for a bag, maybe they do it for love or maybe they do it because it’s the expedient thing to do. Oh, and in case you’re wondering, I bought her that purse.
latimerburned has no positions in the stocks mentioned above. The Motley Fool owns shares of Coach. Motley Fool newsletter services recommend Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.