Capri Holdings overview after recent trading performance

Capri Holdings (CPRI) has seen a mixed stretch in its stock performance recently, with the price at $18.53 after declines of around 7% over the past month and 8% over the past 3 months.

Looking beyond the recent weakness, with the share price down 24.03% year to date, Capri Holdings has delivered a 1-year total shareholder return of 0.43% but a 5-year total shareholder return down 67.99%. This suggests longer term momentum has faded while shorter term moves remain choppy as investors reassess both growth prospects and risks.

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With Capri’s share price down sharply over several years and recent returns still subdued, the key question now is whether current levels reflect an undervalued global luxury group or whether the stock already captures any future recovery in growth.

Most Popular Narrative: 50.8% Undervalued

According to the most followed narrative, Capri’s fair value sits at $37.64, roughly double the last close at $18.53, which puts a bold turnaround scenario front and center.

• It has become more apparent that Capri’s turnaround story has to be done with no moat and rather tiny margins moving forward as it tries to move back to profitability. It can’t currently do buybacks and has to deal with more declining revenue. Projected inflation and a likely case of consumer burnout make the luxury space a significant risk. Their largest brand, Michael Kors, is undoubtedly experiencing a decline and will require crucial strategic understanding to reverse this trend. However, they have shown their brands to be inherently valuable and could sell them off in the future. These guys sell for way less than their revenue, and going back to a 10-12% margin, which is less than pre-Covid, would leave this company still significantly undervalued even if it has to cut high single-digit percentages off of its per annum revenue.

This valuation hinges on Capri returning to healthier profit margins while accepting pressure on revenue. It reflects future earnings and a higher profit multiple. It also raises questions about which combination of margin and growth gets to that $37.64 figure and how much depends on Michael Kors and the other brands staying relevant over time.

Result: Fair Value of $37.64 (UNDERVALUED)

However, this hinges on a luxury consumer that holds up and on Michael Kors stabilising. Weaker demand or brand erosion could quickly puncture that upside case.

Next Steps

With such a split between risk and recovery stories, it makes sense to move fast and test the numbers yourself. You can start with 3 key rewards and 1 important warning sign.

Looking for more investment ideas?

If Capri’s story has you thinking harder about where your money works best, do not stop here. Give yourself options by scanning a wider set of stocks.

• Target potential mispricings by reviewing 49 high quality undervalued stocks and see which companies currently trade below their implied worth.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.