Riding Ralph Lauren Higher?

 | Feb 09, 2012 | 12:00 PM EST
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Ralph Lauren (RL) is an amazing brand.

Think about it. The clothing sells on the deep discount racks at TJMaxx and Marshall's at 50%-60% off. It's the king of the outlet mall. It holds anchor tenant status at every outlet mall that I know of. Every weekend the outlet stores are packed with tourists who have traveled far and wide to try on the bargains.

Then, when you think the brand is headed for the dustbin of designers, Ralph Lauren turns around and sells in the department stores at full price. The brand is one of the few that is excluded from virtually every Macy's (M) coupon and one-day sale. And to top it off, Ralph Lauren's high end Black Label sells on the ritziest streets in the world. Can investors ride this stock higher or is it time to put this horsey out to pasture?

Ralph Lauren reported third-quarter fiscal 2012 results. For the quarter, revenue grew 17% year-over-year to $1.8 billion and same-store sales were 12% higher. Operating income rose 10% to $270 million. And, if that wasn't enough, the company guided Q4 higher. The stock is as "jumpy as a debut at first ball". (Okay, I stole that line from the first season of "Downton Abbey.")

Real Money's Brian Sozzi also has valuation concerns about RL. Read his column from Wednesday.

The company didn't get lucky for the holidays or get a pop from nice weather. RL has been galloping though the mall all year. Revenue for the first nine months of FY12 rose 24% to $5.2 billion. Net income rose 19% to $587 million. Wholesale sales increased 19% to $2.4 billion for the first three quarters. Year-to-date retail sales rose an astounding 29% to $2.7 billion. Same-store sales were up 14%. Profits rose 22% to $3.1 billion. Amazing. Who does that nowadays?

The stock jumped $14 Wednesday as legions of rookie shorts were squeezed out of the name. (Apparently, some people still short stocks on a flimsy thesis.) Anyway, I wouldn't pay up $14 for anything. At $170, RL is trading at 21.5x my FY13 estimate of $7.90 per share, which historically speaking is at the high end of the range. (Although the shares did trade as high as 26x earnings, but that was in 2008 when the economy was superheated.)

Ralph Lauren has managed to stay fashionable. No other designer that I know of -- except for Coach (COH) -- has been able to operate at such a diverse set of price points without wrecking its brand. On weakness, Ralph Lauren is certainly a stock that investors can ride higher.

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