By Serge Berger
Luxury retailer Michael Kors
) has been taking market share away from rivals like Coach
) and Ralph Lauren
). Since its initial public offering in late 2011, the stock has displayed wonderfully trending price action for investors and traders alike.
KORS made a big entrance with its IPO. It was priced at $20 a share, above its estimated range of $17 to $19, and soared 21% that day to close at $24.20. The company sold 47.2 million shares, raising $944 million.
The offering gave the company a market value of roughly $1.2 billion, which has expanded to $16.7 billion. At its current size, Michael Kors is larger than Ralph Lauren, a Fortune 500 company. And Michael Kors is quickly expanding both domestically and internationally in its efforts to gain more brand awareness.
On Nov. 5, Michael Kors reported strong quarterly earnings and gave a rosy outlook, which led to another leg higher in its stock price.
For its fiscal second quarter, the company reported that total revenue increased 38.9%, to $740 million, from the same period last year. At the end of the quarter, Michael Kors operated 352 retail stores, not including the company's partnerships with other retailers like Macy's
Net income came in at $146 million, or $0.71 per diluted share, which represented a stunning 50% year-over-year gain. Gross margins expanded to 61%, with operating margins at 30%.
In addition to the company's impressive fundamentals, the stock has great respect for technically important price levels, which makes it wonderful to trade from the long side.
Since its IPO, KORS has trended higher in an impressive way (not surprisingly considering the company's growth rate), but also routinely allowed for healthy consolidation periods. From a technical perspective, KORS has traded higher in a simple uptrending channel. Each dip was bought, and traders sold when the stock ran too far or at least did not chase it too high.
The multi-year chart below shows this trading channel well (I've included Bollinger bands):
In recent months, the stock has spent most of the time tracing along the upper Bollinger band, which is constructive as long as a chart's slope is not too steep. The continued consolidation periods followed by rallies keep the stock in a positive pattern.
On the daily chart below, KORS continues to hold its 50-day simple moving average (upper blue line) as great first support -- and thus a risk/reward line to monitor.
Since mid-November, the stock has again settled into a bullish sideways consolidation pattern, and in recent days has again pushed toward the upper end of it. The stock looks to be coiling up for its next break higher.
Action to take:
-- Buy KORS on a close at or above $83
-- Set stop-loss order at $80.40
-- Set initial price target at $88 for a potential 6% gain in three to six weeks
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