Ralph Lauren trades at $388.04 and has moved in lockstep with the market. Its shares have returned 5.6% over the last six months while the S&P 500 has gained 8.6%.
Is now the time to buy Ralph Lauren, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Ralph Lauren Will Underperform?
We don’t have much confidence in Ralph Lauren. Here are three reasons we avoid RL, plus one stock we’d rather own.
1. Weak Constant Currency Growth Points to Soft Demand
In addition to reported revenue, constant currency revenue is a useful data point for analyzing Consumer Discretionary – Apparel and Accessories companies. This metric excludes currency movements, which are outside of Ralph Lauren’s control and are not indicative of underlying demand.
Over the last two years, Ralph Lauren’s constant currency revenue averaged 9.6% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.
2. Weak Operating Margin Could Cause Trouble
Operating margin is a key measure of profitability. Think of it as net income – the bottom line – excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Ralph Lauren’s operating margin has risen over the last 12 months and averaged 14.4% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports inadequate profitability for a consumer discretionary business.
3. Free Cash Flow Projections Disappoint
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Over the next year, analysts’ consensus estimates show they’re expecting Ralph Lauren’s free cash flow margin of 9.2% for the last 12 months to remain the same.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Ralph Lauren, we’ll be cheering from the sidelines. That said, the stock currently trades at 20.7× forward P/E (or $388.04 per share). This valuation tells us a lot of optimism is priced in – we think there are better opportunities elsewhere. Let us point you toward one of our top software and edge computing picks.
Stocks We Like More Than Ralph Lauren
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
