Why A 130% Upside To Tapestry’s Stock Post Coronavirus Can’t Be Ruled Out

Comparing the trend in Tapestry’s (NYSE: TPR) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 130% once fears surrounding the coronavirus outbreak subside. Our conclusion is based on our detailed comparison of Tapestry’s performance vs. the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Tapestry Stock Fare Compare With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31st and April, 2nd Tapestry stock has lost 57% of its value (vs. about 24% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

Tapestry’s Stock Has Fallen Considerably Because The Situation On The Ground Has Changed

The decline in Tapestry’s stock is understandable, considering the impact that the outbreak and a broader economic slowdown are likely to have on total consumption/consumer spending and the global apparel industry. Notably, more than 15% of the company’s total revenues are derived from China, which has been the worst impacted by the outbreak. Moreover, people are just not going to shop for luxury or even basic apparel products. Tapestry has temporarily shuttered stores in North America and Europe, which is further impacting the company’s performance. Besides lower demand, Tapestry sources nearly 10% of its goods from China. This places the company in a tricky spot as the company’s supplies could be adversely impacted, given its dependency on the country. In its fiscal Q2 earnings (ending December), Tapestry anticipated a hit of $200-$250 million to its sales in the second half of 2020. However, we believe the impact could be much higher as the impact of the outbreak increases.

But Tapestry Stock Witnessed Something Similar During The 2008 Downturn

• We see Tapestry stock declined from levels of around $37 in October 2007 (the pre-crisis peak) to levels of around $11 in March 2009 (as the markets bottomed out) – implying the company’s stock lost as much as 70% from its approximate pre-crisis peak. This marked a steeper drop than the broader S&P, which fell by about 51%.
• However, Tapestry recovered strongly post the 2008 crisis to about $29 in early 2010 – rising by 163% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will Tapestry’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that Tapestry stock has fallen by 57% this time around compared to the 70% decline during the 2008 recession, we can expect it to recover by almost 130% to levels of $25 once economic conditions begin to show signs of improving. This marks a full recovery to the $25-level Tapestry stock was at before the coronavirus outbreak gained global momentum.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of the outbreak’s impact on a diverse set of Tapestry’s multinational peers – from Coronavirus and GES to impact on competitor L Brands, and Coronavirus on URBN stock. The complete set of coronavirus impact and timing analyses is available here.

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