A Stock That's Worth a Closer Look - Handbags or Trash?

About two weeks ago, I posted the financial data of a particular stock and wondered if it was A Stock That's Worth a Closer Look?

The company is experiencing positive free cash flow, has negligible debts, and pays out a decent yield of 3.9% at a payout ratio of about 40%. Its PE ratio is in the region of 11x, distributions have stayed below earnings, and earnings continue to grow. All the above would be "green" by my book for a stock screening.

The only blips: (a) a price to book value of almost 4x; and more significantly (b) it has experienced a drop in price of more than 40% in the past year! The question is, why?

The company has pretty decent margins and likely has some brand attractiveness. The financials as mentioned above would suggest that it is well managed as well. So why the sharp drop, of a magnitude not unlike the Great Financial Crisis?

Is it a hoard behaviour? A gathering of Orcs welcoming Doomslayer? Does it then create an opportunity?

The stock concerned is none other than Coach, traded on the NYSE. It is facing intense competition from Michael Kors and Kate Spade. Has it gone out of fashion?

Supposedly it has diluted its branding due to its over dependency on discount store sales. Its sales in the US have dropped somewhat. But its Japan and China sales appear to be doing well.

When last I visited one of their US outlet stores a few years back, it was filled with tourists - of the Chinese kind. The store was crowded, and noisy. The check out queue, had a queue.

I see many ladies slinging one to work, though I wouldn't be able to tell if it's an "original" or a "chiong" ('copy original'?) item. My wife tells me however that Coach is passe. She's the one who knows the fashion of the day. Me, I just pay. If the ladies don't bite, they must really be in serious trouble.

So is this a McDonalds facing off the challenge of Chipotle and Yum? Or is this a Kodak facing the challenge of a digital age? Is this a Buy or a Sell? For now, my wife is holding onto her Coach bags, and I'm holding on to my Coach shares. Hers may be suffering from depreciation, mine may be suffering from deprecation. Time will once again tell.

Disclaimer: The usual reminder - do your own analysis and decide for yourself.