The overall economy is starting to percolate, and some could argue that this will be to the advantage of upper-end retailers and makers of high-end goods such as Coach (NYSE:COH), which is famous for its upper-end pocketbooks. However, do I think that now is the time to hop into shares of the New York based company? The answer is no.

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The Cons

Consumers are a little more at ease with the economic environment than they were in Q4 2008 or in Q1 2009. Because of this, they have become a bit more willing to spend money on things that are important to them.

However, I am convinced of two things: 1) Overall the consumer will be much more careful with their money than they were just a few short years ago and 2) It could take several more years before high-end retailers really start to hum. (What people buy and where they shop can provide valuable information about the economy. Check out Using Consumer Spending As A Market Indicator to learn more.)

With respect to Coach, earlier in the week it released its fourth-quarter results. It earned 43 cents a share excluding items. That was in line with expectations. It also generated about $777.7 million in revenue, which was lower than the $781.5 million achieved in the comparable period the year before. It was also slightly lower than the roughly $780.4 million Wall Street analysts had been forecasting. In short, the earnings weren't horrible, but they weren't all that inspiring either.

I'm also a little bit wary of the stock based upon valuation. At present, the shares trade at roughly 15 times this year's estimate. Although not terribly expensive, I think the stock has gotten ahead of itself. Note that it's expected to grow its EPS at only about an 8.5% clip from this year (ending June 2010 - estimate is $1.88) to next (ending June 2011 - estimate is $2.04) based upon current estimates.

More Affordable Options
Some may be more open to buying Coach's wares in the coming months. However, I would suggest that a large number of the fairer sex might be more inclined to seek out bargains at say JCPenney (NYSE:JCP) or Macys (NYSE:M), which are considered to be more middle-of-the-road department stores, but which also offer attractive and vast merchandise options.

For the record, both of those stocks seem to be looking a little rich these days. JCPenney trades at about 37 times this year's estimate. Macy's trades at about 20 times this year's estimate. When it comes to retail, I'm more partial to discounter Target (NYSE:TGT), which trades at about 15.4 times this year's estimate, which I think will be very busy in the upcoming year.

To be clear, the bulls on this stock might point to insider buying that took place earlier this year. This is true, and it was certainly nice to see. However, it makes sense to point out that some of that buying took place in the teens. It will be interesting to see if insiders step up to the plate at these levels in any volume in the open market.

A Caveat
Coach does have something fairly big going for it that really can't be overlooked and that is momentum. The shares are well off their 52-week lows and if they make a new high, this snowball so to speak might continue rolling.

The Bottom Line
While I think that Coach can do well long-term, I don't think this is a good entry point. If it were to come down to the low $20s however, I may change my mind. I would much rather place my bet on deep discounters like Target right now. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)


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