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Kate Spade stock analysis – Calling a Spade a Spade


Jun.19.2017

Kate Spade stock analysis: Ever since Coach (NYSE: COH) announced it would be acquiring rival Kate Spade (NYSE: KATE) on May 8th, 2017, the Kate Spade stock has been forming the weirdest set of consolidating Spinning Top candlesticks ever! The stock has been trading in a really narrow range around the 18.42 level. However, it slowly but surely has been moving higher. Let us understand the Coach-Kate Spade better with a Kate Spade stock analysis.

 

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1- Fundamental Points

Who are they?

Many of our lady investors may already be obsessed with Kate Spade New York products. The brand offers a variety of products, from handbags and clothing to jewelry, fashion accessories, fragrance, eyewear, shoes, swimwear, home decor, desk accessories, stationery, tabletop and gifts.

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It all started back in 1993, when Katee Brosnahan Spade, a former accessories editor at Mademoiselle, set out to design handbags. Debuting with six silhouettes, she combined sleek, utilitarian shapes and colorful palettes in an entirely new way. And so Kate Spade New York was born in the Big Apple.

Who are their competitors?

Kate Spade is considered as an “affordable luxury” brand. Its most direct competitors are Michael Kors (NYSE: KORS), and Coach, both based in New York as well. Tory Burch is also considered a competitor, however, it is a private company yet to go public.

Coach vs. Kate Spade stock analysis:  One of the most important factors to consider is Kate Spade's very low store count in North America of 108 full-price units and 68 outlet stores versus Coach's 223 full-price units and 172 outlets. Coach's market cap is almost 6 times larger than Kate Spade, standing at 13.087B. It also pays dividends of approximately  2.92%, or $1.35 per share, while Kate Spade stopped paying dividends when it dropped to its IPO price back in 2009.

Michael Kors: While Michael Kors was quick in growing its market share until 2016, expanding from about 350 company-operated retail stores at the end of March 2013 to 670 stores at the end of March 2016, its brand value has dropped among fashionistas.  In 2017, it is closing up to 125 stores. Sales at stores open at least a year (comparable sales) fell 14.1% in its most recent quarter, and continue to fall sharply this year. What's more, Michael Kors' wholesale business fell 22.8% in the quarter.

Good to know: Stocks of mid-price fashion firms have fallen out of favor with investors and fashionista alike in the recent years.

What's the Latest on the Acquisition?

Coach Inc. was able to reach a deal to acquire Kate Spade & Co. in May 2017.  Under the terms of the transaction, Kate Spade shareholders will receive $18.50 per share in cash for a total transaction value of $2.4 billion. This tender offer will expire on June 23, unless extended.

Good to know: A tender offer is an offer to purchase some or all of shareholders' shares in a corporation, with the price offered usually at a premium to the stock's current market price.

Coach stock price jumped 5 per cent after the acquisition announcement, and after the company released its fiscal third-quarter results that included better-than-expected earnings.

With the acquisition, Coach has some opportunity to add Kate Spade stores, especially in areas where Coach has already closed some of its full-price stores.

We can perhaps learn best about Kate Spade from Coach CEO Victor Luis, who said in May "Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials."

On the other hand, after the deal was reached on May 8th, Kate Spade chief executive officer Craig A. Leavitt wrote in a press released that  joining "Coach’s portfolio of global brands will maximize value for our shareholders and positions Kate Spade for long-term success as we continue our evolution into a powerful, global, multi-channel lifestyle brand."

Regardless of these warm notes, in the process of sealing a tender offer, another investor like Jimmy Choo, could potentially get involved in a hostile takeover, upping the offering price per share.

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However, if the deal ends up going through, Coach and Kate Spade's leadership teams could join to leverage their expertise across the business,  eliminating a competitor undercutting prices, and giving Coach the opportunity to help Kate Spade avoid the same pitfalls they face. The deal could ultimately end up being good for the industry as a whole.

This brings us to the second point of IDDA for the Whole Foods stock analysis: Technicals.

 

2- Technical Points: Kate Spade stock analysis

Monthly Chart: Looking at the monthly chart, Kate Spade stock price has had a choppy road since the company went public back in 1984. After reaching a high of $46.66 pre-share in 2007 right before the financial crisis hit the globe, the stock price dropped like a rock to its IPO price of 1.56.

Kate Spade stock analysis - Monthly Chart Technicals - Fibonacci Ichimoku Kate Spade stock analysis - Monthly Chart Technicals - Fibonacci Ichimoku

 

After that, the stock was able to correct the losses over the following 6 years, almost reaching the previous highs. However, since 2014, it has been forming continuous lower highs, currently trading below the monthly Ichimoku cloud.

 

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The 61% Fibonacci level of 15.89 is acting as a strong support.

 

Daily Chart: The stock price opened with an 8 percent gap jump on the Monday following the Coach acquisition announcement. However, since then it has been trading in a surprisingly narrow range, forming a series of Spinning Top candlesticks as it enters the daily Ichimoku cloud. The upper band of the cloud falls on the 50% Fibonacci level, marking a pivot level at 20.26. With that, any positive surprise on June 23rd could push the price to this level.

The Tenkan line has recently crossed above the Kijun line.

Kate Spade stock analysis - Daily Chart Technicals - Support - Pivot - Resistance Kate Spade stock analysis - Daily Chart Technicals - Support - Pivot - Resistance

 

A break above the 20.26 pivot could give us the second Ichimoku confirmation, opening doors for a potential long-term price hike to resistance levels at 22.48 and 24.37 respectively.

3- Market Sentiment

Short term time frame Kate Spade stock analysis shows a pretty indecisive trading crowd, calling a spade a spade. Meanwhile, the stock's Beta, which is a measure of the volatility, or systematic risk, is slightly above the market, at 1.29.

Its one-year target estimate according to Yahoo! Finance is approximately $20 per share, which is lower than our 22.48 technical resistance.

 

Kate Spade stock analysis - Investing Strategy

As the 4th point of the IDDA, you must calculate your risk tolerance before deciding on which investing strategy is suitable for your portfolio. Join us for a free MasterClass to learn more.

In order to make sure Kate Spade is the right asset to add to your portfolio, you must also conduct risk management for both yourself and the security you are analyzing. The beta of stock measures its volatility or systematic risk in relation to the market’s volatility. As increased volatility comes with increased risk, some believe that the beta of a stock is a good indicator to measure risk. The market has a beta of 1, and if a stock has a beta of 1.3, it means that the stock’s volatility is 30% higher than that of the market’s. Some interpret it as 30% riskier than the market as a whole.

Kate Spade has a relatively high beta of 1.29, which means that it more volatile as compared to the market. 

Considering all points of the IDDA and the recent fundamental developments, there could be an upward potential when it comes to KATE's price. However, the growth could be slow and capped at the pivot level of 20.26.

Here are Invest Diva's calculations for important approximate levels, with regards to the Kate Spade stock analysis.

Support Levels Turning Point Resistance Levels

14.02

18.49

22.48

15.89

20.26

24.37

 

As an Invest Diva you should be able to put the 3 and 4 together and develop a strategy suitable for your portfolio and risk tolerance at this time. For further help, and if you want to chat with me regarding your trades, join our investing group here. It's awesome!!

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