Schaeffer's Trading Floor Blog

Weekly Contrarian: Is Michael Kors Holdings Ltd (KORS) Poised for Additional Gains?

KORS' outperformance on the charts could be just the tip of the iceberg

by 11/7/2013 11:08 AM
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Michael Kors Holdings Ltd (NYSE:KORS) "knows how to make it work," according to a recent article on CNNMoney, and the company's stronger-than-expected turn in the earnings confessional earlier this week underscored this statement. What's more, same-store sales for the fiscal second quarter surged by 23%, marking the 30th consecutive quarter of gains. Meanwhile, the apparel producer raised its full-year outlook, giving KORS some momentum heading into the holiday season.

The author goes on to note that the firm is a standout in its sector, particularly when compared to Coach, Inc. (NYSE:COH), as the latter's disappointing earnings report last month dragged the shares further south. Additionally, some feel that the Coach name's lack of association with an actual person is also hurting the once-hot luxury brand. On the other hand, KORS is considered a "glamorous designer label" yet still offers items at affordable prices. "The company is generating consumer excitement in a way we've never seen in the luxury accessories category," said Omar Saad of the ISI Group. The article concludes by pointing out that some of its global competitors -- such as H&M and Fast Retailing -- sport an average market value of $60 billion, versus Michael Kors' current market value of about $16 billion, leaving plenty of room for future growth.

Contrarian Perspective

KORS has certainly displayed its technical chops in 2013, gaining nearly 55% year-to-date. In addition, the shares touched a record high of $80.43 yesterday, thanks to a pair of price-target hikes at Canaccord Genuity and Wedbush Securities. On the charts, the stock continues to trade above its 10-week moving average, which has served primarily as support since early May.

Nevertheless, there are still a number of doubters among the options crowd. In fact, KORS' 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.93 ranks higher than 95% of similar readings taken over the last 52 weeks. Or, in simpler terms, traders have snapped up puts relative to calls at a faster pace just 5% of the time during the past year. This bevy of bearish bets -- particularly at the underfoot November 77.50 strike -- could end up translating into options-related support, as front-month expiration draws closer.

Elsewhere, although 10 out of 14 covering analysts have deemed Michael Kors Holdings Ltd (NYSE:KORS) worthy of a "buy" or better endorsement, Thomson Reuters' average 12-month price target for the security sits at $83.89 -- even with the aforementioned price-target boosts factored in. This denotes a premium of just 6.7% to the stock's current perch at $78.60. This leaves the door open for additional price-target adjustments to the upside, which could serve as contrarian tailwinds for KORS down the road.

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