Ralph Lauren’s 34.2% return over the past six months has outpaced the S&P 500 by 25.4%, and its stock price has climbed to $231 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Ralph Lauren, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons why we avoid RL and a stock we'd rather own.
Why Is Ralph Lauren Not Exciting?
Originally founded as a necktie company, Ralph Lauren (NYSE:RL) is an iconic American fashion brand known for its classic and sophisticated style.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Ralph Lauren’s sales grew at a weak 1.1% compounded annual growth rate over the last five years. This fell short of our benchmarks. 
2. Weak Constant Currency Growth Points to Soft Demand
In addition to reported revenue, constant currency revenue is a useful data point for analyzing Apparel and Accessories companies. This metric excludes currency movements, which are outside of Ralph Lauren’s control and are not indicative of underlying demand.
Over the last two years, Ralph Lauren’s constant currency revenue averaged 3.9% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
3. Cash Flow Margin Set to Decline
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the next year, analysts predict Ralph Lauren’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 14% for the last 12 months will decrease to 12.5%.
Final Judgment
Ralph Lauren isn’t a terrible business, but it doesn’t pass our bar. With its shares beating the market recently, the stock trades at 19× forward price-to-earnings (or $231 per share). This valuation tells us a lot of optimism is priced in - you can find better investment opportunities elsewhere. We’d suggest looking at Google, whose cloud computing and YouTube divisions are firing on all cylinders.
Stocks We Would Buy Instead of Ralph Lauren
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,691% between September 2019 and September 2024) as well as under-the-radar businesses like United Rentals (+550% five-year return). Find your next big winner with StockStory today for free.
