News came out this afternoon that Ralph Lauren is stepping down as CEO from his namesake company (RL). According to the FT, RL shares have jumped 5% in after market hours. Unfortunately for investors, RL will need more good news than that in order to kick start this stock into a higher gear. RL has been stuck in a downtrend for several years and broke through an important support level this year. From a technical perspective, it could rally significantly from here and still be stuck in a relative performance downtrend.
RL is beginning to look compelling from a valuation standpoint, especially from a relative valuation standpoint to its peers. RL trades at just 5.1x intangible-adjusted cash flow and 1.7x intangible-adjusted book value. It’s the cheapest stock in its sub-industry on a price to cash flow basis and the second cheapest stock on a price to book value basis. It also pays the second highest dividend yield, 1.9%, behind Coach in the Apparel Accessories & Luxury Goods sub-industry.
Growth is what is holding back this stock. Over the past three years, EPS has only grown by 3.7% and Sales have grown by only 7.4%, annually. The current EPS growth rate is only about 1/4 of what the RL has managed to grow EPS by over the past 10 years. While the recent sales growth numbers are only about 1/2 of what sales have grown by over the past 10 years.
Lastly, analyst expectations have come down quite a bit so there is the potential that this stock could surprise to the upside down the road. Analysts only expect sales to grow by 3.6% on average and EPS to grow by 5.2% on average, over the next four years.