Kate Spade (KATE) Showing Signs Of Perilous Reversal Today

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Kate Spade ( KATE) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Kate Spade as such a stock due to the following factors:

  • KATE has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $82.9 million.
  • KATE has traded 354,723 shares today.
  • KATE is down 3% today.
  • KATE was up 17.9% yesterday.

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More details on KATE:

Kate Spade & Company, together with its subsidiaries, primarily designs and markets a range of apparel and accessories. It operates through KATE SPADE, Adelington Design Group, and JUICY COUTURE segments. KATE has a PE ratio of 45.3. Currently there are 5 analysts that rate Kate Spade a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Kate Spade has been 3.1 million shares per day over the past 30 days. Kate Spade has a market cap of $3.3 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 2.03 and a short float of 6% with 2.74 days to cover. Shares are down 3.5% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Kate Spade as a hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, premium valuation and relatively poor performance when compared with the S&P 500 during the past year.

Highlights from the ratings report include:
  • Compared to other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, KATE SPADE & CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The revenue growth greatly exceeded the industry average of 14.7%. Since the same quarter one year prior, revenues rose by 48.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The gross profit margin for KATE SPADE & CO is rather high; currently it is at 58.61%. Regardless of KATE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KATE's net profit margin of -1.65% significantly underperformed when compared to the industry average.
  • The debt-to-equity ratio is very high at 5.27 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, KATE maintains a poor quick ratio of 0.90, which illustrates the inability to avoid short-term cash problems.

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