Goldman Sachs recommends buying Tapestry now. Why’s that?

Goldman Sachs recommends buying Tapestry now. Why’s that?

The stock markets are often volatile and unpredictable. This is especially true during global crisis, such as the one caused by the coronavirus pandemic. Covid-19 changed the world and our lifestyle. Lots of companies that were flourishing before the pandemic suffered greatly. Design stocks were among them. During the lockdowns, people had nowhere to go, and thus less need for new clothes or accessories. Tapestry – one of the best-known design stocks in the art world, plummeted down by 50% year-to-date due to the crisis.

However, analysts are optimistic about Tapestry. They advise grabbing their shares while it’s trading so low. The company prides itself on the quality and craftsmanship of its products. It also houses several popular luxury fashion brands, among them Stuart Weitzman, Kate Spade, and Coach.

Goldman Sachs’ analyst, Alexandra Walvis, stated that Tapestry’s latest press releases and recent data from the luxury industries and accessories suggest an exceptional promotional activity. Experts are more optimistic about near-term sales as well. 

Why does Goldman Sachs recommend buying this stock?

Walvis lists several reasons indicating that Tapestry may rebound soon.  The company has a solid standing in China. That makes Tapestry better-positioned than other apparel vendors, among them Capri Holdings – its main competitor.

China accounts for 15% of sales of the stock as Tapestry has proactively expanded its direct business in the country. The company used several strategies to achieve that goal, such as new e-commerce initiatives, business takebacks across brands, or specialized product launches. Furthermore, Chinese consumers spend more on their domestic market. So, Tapestry is well-positioned to recapture some tourist spending as well.

So far, Tapestry’s balance sheet and liquidity access remain strong despite the Covid-19 pandemic. And the company’s ability to lower promotional intensity year-over-year is also a positive signal.

Considering all this, Walvis upgraded Tapestry from Neutral to Buy. The analyst set the price target at $18, with 35% gaining potential over the next year. However, the $16.25 average price target has an upside potential of 22%.