Every single time you witness a random asset gaining dozens of percent, you might experience a touch of FOMO. And the next thought that might cross your mind is, maybe it’s not the end yet? Maybe another powerful and profitable hike is near? Or, at the least, a period of gradual, steady growth? Let’s investigate why Capri stock skyrocketed by 55% and what opportunities it may present.
Capri is a global fashion luxury group operating such brands as Versace, Jimmy Choo, and Michael Kors. And this company has agreed to merge with Tapestry, another fashion giant and a parent company of Coach and Kate Spade. The deal has been valued at $8.5 billion, or $57 a share in cash. Following this news, Capri stock immediately surged by more than 50%, approaching its buyout level.
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Capri stock chart demonstrates what means 55% (the answer is obvious, it’s huge).
Despite the fact that Tapestry is also a public company, its shareholders turned out to be less fortunate – a considerable number of investors decided that what they saw was not the best deal. This sentiment resulted in a more than 15% drop.
Some market participants view this new partnership as an attempt to create an American equivalent of LVMH Moët Hennessy Louis Vuitton, a luxury goods conglomerate and one of the most influential companies around the globe. Yet, it appears that such a comparison might be premature. The following chart clarifies why LVMH and Capri-Tapestry alliance are different weight classes so far.
However, Tapestry officials discourage drawing parallels with European brands and emphasize the potential for mutual development through the deal. Capri stock may lose its relevance after the deal's closure (the X-hour is August 10, 2024), so it seems that paying attention to Tapestry shares is rather a good idea. Of course, if you believe it's a match made in heaven.
After a 16% drop, Tapestry stock seems undervalued. The consensus forecast suggests a 44% growth in the next 12 months. While adjustments are likely (indeed, some analysts have already made revisions), the fair price of these papers might be much higher.
To reach a verdict, do your own research. Maybe, it will tell you that the best choice is to forget about Tapestry, and focus on LVMH stock. But remember, just because you can buy any of these equities, doesn't mean it'll be a good look for your specific portfolio.