Michael Kors Holdings Ltd Quarterly Valuation – June 2014 $KORS

MK_COOL_GRAY_7CBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Michael Kors Holdings (KORS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Michael Kors Holdings Limited is a global lifestyle brand . The Company designs, materials and craftsmanship with a jet-set aesthetic that combines stylish elegance and a sporty attitude. The Company is an American sportswear house to a global accessories, footwear and apparel company with a presence in over 85 countries. Its segments include retail, wholesale and licensing. It is focused on retail stores, department stores, specialty stores and select licensing partners. As of March 30, 2013, its retail segment included 231 North American retail stores, including concessions, and 73 international retail stores, including concessions, in Europe and Japan. As of March 30, 2013, its wholesale segment included wholesale sales through approximately 2,215 department store and specialty store doors in North America and wholesale sales through approximately 1,034 department store and specialty store doors internationally.

KORS Chart

KORS data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $88.60
MG Value $68.68
MG Opinion Overvalued
Value Based on 3% Growth $25.87
Value Based on 0% Growth $15.16
Market Implied Growth Rate 20.58%
Net Current Asset Value (NCAV) $6.69
PEmg 49.66
Current Ratio 5.76
PB Ratio 10.02

Balance Sheet – 3/29/2014

Current Assets $1,777,200,000
Current Liabilities $308,400,000
Total Debt $0
Total Assets $2,217,000,000
Intangible Assets $62,000,000
Total Liabilities $410,800,000
Outstanding Shares 204,290,000

Earnings Per Share

2014 $3.22
2013 $1.97
2012 $0.67
2011 $0.30
2010 $0.17
2009 $0.00
2008 $0.00
2007 $0.00
2006 $0.00
2005 $0.00
2004 $0.00

Earnings Per Share – ModernGraham

2014 $1.78
2013 $0.92
2012 $0.34
2011 $0.15
2010 $0.06
2009 $0.00


Michael Kors Holdings is not suitable for the Defensive Investor but does qualify for the Enterprising Investor.  The company’s short history eliminates it from contention for the Defensive Investor, but the Enterprising Investor’s only concern is with the lack of dividend payments.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of Ralph Lauren (RL) and ModernGraham’s valuation of Coach Inc. (COH).  From a valuation side of things, the company appears overvalued despite growing its EPSmg (normalized earnings) from $0.06 in 2010 to $1.78 for 2014.  This strong level of demonstrated growth does not quite support the market’s implied estimate of 20.58% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value well below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Michael Kors Holdings (KORS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author held a long position in Coach Inc. (COH) but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia; this article is not affiliated with the company in any manner.






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