Knowledge Leader News: Ralph Lauren Steps Down As CEO, Investors Still Need To See More

Knowledge Leader News: Ralph Lauren Steps Down As CEO, Investors Still Need To See More by Eric Bush, CFA, Gavekal Capital Blog

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.

Charlie Munger: Invert And Use “Disconfirming Evidence”

Charlie MungerCharlie Munger is considered to be one of the best investors and thinkers alive today. His thoughts and statements on investment research, investment psychology, and general rational behavior are often incredibly insightful. Anyone can learn something from this billionaire investor and philosopher. Q2 2020 hedge fund letters, conferences and more If you’re looking for value Read More

Intangible-Adjusted Valuations


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.


JPEG 6 - Copy