I'm sure the last thing on the mind of daily commuters who are paying $4 a gallon for gas is the purchase of a luxury handbag from Coach (NYSE:COH). While retail purchases for the masses in the U.S. may be close to a standstill, Coach is prepared to preserver by operating on a global scale.

The company is banking on future growth for its luxury merchandise from fast growing countries like China and India where GDP growth is hitting or near double digits rates. The idea is to capture the growing appetite of consumers in these countries whose taste for the good life is on the rise.

Asia: Where Outsourcing and High-End Markets Meet
The majority of Coach's revenue is generated from its ever changing line of stylish and popular handbags. Coach controls the sourcing of its raw materials from offices in Hong Kong, China, South Korea and FlorenceItaly. Its manufacturing operations are carried out in the U.S. and low cost countries including India, Indonesia and Taiwan. In countries where Coach does not have a walk-in store it will use freestanding retail stations in places like Mexico, Australia and the United Arab Emirates.

The widespread system that Coach uses to get its latest fashions on the shoulders of customers helps the company limit expenses by creating a mixture of cost and manufacturing capabilities.

Coach's sales rose 28% to $2.6 billion in fiscal year 2007 driven by direct to customer sales at its retail stores in the U.S. and Japan. Coach's operating margin increased nearly 3% over the prior year to 38%.

Value investors often search for undervalued stocks with a price-to-earnings growth ratio below 1. Coach has a PEG of 0.78. (Learn how this simple calculation can help you determine a stock's earnings potential, in our related article PEG Ratio Nails Down Value Stocks.)

Coach competes directly with European luxury brands including Dooney & Bourke and Louis Vuitton Moët Hennessey (OTC:LVMHF). Other competitors including Macy's (NYSE:M), Dillard's (NYSE:DDT), and Nordstrom (NYSE:JWN). All of these high-end department stores sell their own private labels merchandise right beside Coach bags and accessories.

Record of International Success
Coach first expanded into Japan in 2001 and by the end of 2007 it sales from there represented 18% of revenue. The company is now targeting China and opened eight new stores opening in mainland China last year. Future plans for expansion are aimed at India. The company's stock price has been dragged down with the rest of the market in response to rising energy prices and falling consumer confidence, but Coach's brand recognition and customer loyalty could lead to a brighter future.

Related Articles
  1. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  2. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  3. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  4. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  5. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  9. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  10. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!